Currency Market Analysis

Nov 10, 2020 | Currency Market Analysis

Global Themes

The greenback fared mixed but mostly steady, as it kept above multimonth lows. The buck was mixed against Europe with the euro flat while sterling surged to fresh two-month peaks. Canada’s dollar weakened from two-year highs. America’s dollar index initially tumbled to two-month lows after Joe Biden was declared president-elect and vaccine euphoria fueled a massive rally for global markets. While the greenback continues to loiter near the bottom of its range, it found a positive from the sharp surge in Treasury yields. The dollar is garnering yield support with America’s benchmark 10-year Treasury note flirting with 1%. The buck’s yield advantage over rivals like the euro and yen had evaporated after the Fed chopped lending rates down to nearly zero. 

EUR

The euro slipped a cent below two-month peaks in vaccine-driven trade. The euro encountered somewhat of cement ceiling after it initially rode a risk rally to early September peaks. Weak European growth prospects and negative lending rates continue to undercut euro rallies. On the local data front, Germany’s ZEW survey of investor optimism weakened more than expected to 39.0 in November, a multimonth low, from 56.1 in October, more evidence of a sharp deceleration in fourth quarter growth.

GBP

Sterling bounced to fresh two-month highs as optimism related to Brexit and a Covid-19 vaccine overshadowed worrisome news on Britain’s economy. A UK-EU Brexit trade deal before year-end, coupled with meaningful progress toward a coronavirus vaccine, could potentially be the pound’s ticket several cents higher. Good news on the Brexit and Covid fronts would seemingly push the specter of negative U.K. interest rates off the table.

CAD

Canada’s dollar slipped Tuesday and was little changed for the week after soaring Monday to two-year peaks. The loonie squandered some altitude as higher U.S. Treasury yields bolstered the greenback’s allure, especially versus lowering yielding rivals like the euro and yen. USD/CAD remains in a 2% hole for the month, as generally resilient Canadian data tempers worries about a sharp slowdown in the pace of its recovery.


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