Currency Market Analysis

Nov 09, 2020 | Currency Market Analysis

Global Themes

A double dose of good news led the U.S. dollar to post steep losses. The U.S. unit was at or near two-month lows against the euro and sterling while it plunged to a two-year trough versus the Canadian dollar. Rivals from Down Under and emerging markets also enjoyed outsized gains against the greenback. Risk sentiment brightened after Joe Biden over the weekend became president-elect, removing a significant source of market uncertainty. Risk appetite was turbocharged after Pfizer announced it developed a highly effective vaccine to tackle Covid-19. Dow futures soared more than 1,500 points or better than 5%. A 10% spike in oil hurled prices toward $41. The U.S. dollar stabilized somewhat as it rallied 1.5% against the yen which accounts for the second biggest slice of the dollar index after the euro.

GBP

Sterling notched two-month highs versus the broadly weaker U.S. dollar. The pound stands to gain from anything that excites risk appetite. But having said that upside for sterling was considered somewhat limited ahead of key domestic data this week. A report on U.K. unemployment Tuesday is forecast to tick higher to 4.8% for the three months to September from 4.5%. Britain Thursday issues monthly and quarterly growth numbers, with the former expected the slow (1.5% vs 2.1%) and the latter seen expanding 15.8% vs a contraction of nearly 20% in Q2.

EUR

A frenzied stampede into risk assets lobbed the euro to fresh peaks, its highest in nearly eight weeks against the greenback. Joe Biden becoming president-elect, coupled with good news on the vaccine front, turbocharged a risk rally at the expense of classic safe havens like the U.S. and Japanese currencies. A successful vaccine could almost single-handedly put Europe on a smoother path to recovery.

CAD

Make that a two-year high for the Canadian dollar. Very promising news on the pandemic front supercharged a global stock and commodity markets rally, sending the loonie to October 2018 peaks. The market is basking in the wake of a weekend resolution to America’s presidential election with Joe Biden of the Democrat party becoming president-elect. Pfizer today kicked the rally into high gear after it announced a candidate vaccine for Covid-19 that was reportedly highly effective. Oil shot 10% higher, putting prices around $41.


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