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Currency Market Analysis

Nov 06, 2020 | Currency Market Analysis

Global Themes

Dollar losses snowballed Friday, knocking the U.S. unit to a range of multi-month lows. The euro and yen led the gains against the greenback with the former near two-month peaks and the latter flirting with eight-month highs. Rivals from Britain and Canada edged off their peaks, succumbing to profit-taking. The dollar is sputtering amid a mix of political and economic uncertainties in the wake of America’s still unresolved election. The market is scaling back expectations for bold U.S. stimulus given scope for a Biden presidency and Republicans maintaining a slim majority in the Senate. Expectations of smaller stimulus from Washington are dampening the outlook for U.S. growth, pressuring the greenback. Moreover, a report today is forecast to show a slower pace of hiring in October. While decidedly weaker, the greenback could find support from better than expected news on the economy or if the vote tallying should continue into next week.


Canada’s dollar hovered below two-month peaks after mixed news on Canada’s job market. Hiring slowed to an increase of 83,600 in October, missing forecasts of a gain of 100,000. The bulk of hiring though came from the more meaningful full-time hires. Unemployment dipped a tick to 8.9% and for the right reason as the size of the country’s workforce grew. The solid overall jobs report bodes well for the loonie’s burst of strength this week from improved risk appetite.


The euro popped to mid-September peaks thanks to broad based greenback weakness. The euro’s outperformance has the single currency flirting with key resistance, levels it would likely need to clear to signal a sustained move higher. Euro sentiment was further burnished by reports that the EU is edging toward a budget agreement. Germany next week issues its influential ZEW survey of investor optimism on Tuesday that could serve as a key test of underlying euro sentiment.


The U.S. dollar kept in the red despite better than expected news on America’s labor market. Nonfarm payrolls rose by 638,000 in October, above forecasts of 600,000. Hiring the two prior months enjoyed modest upgrades. The big news came from the percentage point drop in unemployment to 6.9% from 7.9%. Forecasts had called for a small improvement in the jobless rate. While solid overall, today’s jobs report is still consistent with the economic recovery losing steam. The dimmer outlook for growth due to expectations of smaller fiscal help from Washington and rising Covid cases likely won’t offer any meaningful support for the dollar.


Another spike in the U.K. pound petered out as sterling moderated from two-week highs. The pound was still on pace to appreciate by nearly two cents this week, boosted by a bold tag team response by Britain’s central bank and government to keep the recovery on track. The Bank of England beefed up its bond bonding program by a substantial GBP150 billion while the government added several more months to a crucial wage scheme program that will now run through March 2021. A bright spotlight will shine on Britain’s economy next week with unemployment due Tuesday and growth on Thursday. Higher unemployment and slower growth are on the cards.

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