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Currency Market Analysis

Nov 12, 2020 | Currency Market Analysis

Global Themes

Market optimism receded Thursday, leaving the greenback broadly steady. The euro and yen firmed but somewhat underwhelming U.K. data weighed on sterling which shed more than 0.6% against its U.S. counterpart. Canada’s dollar fell to one-week lows with broader markets on the defensive. Global markets rallied sharply to begin the week following promising news about a potential Covid-19 vaccine. But the continued surge in coronavirus infections has dampened enthusiasm, leading to a revival in demand for safer bets. The buck has outperformed this week as optimism about a vaccine helped to brightened longer run prospects for the U.S. economy which pushed Treasury yields sharply higher, burnishing its appeal. The dollar will look for direction today from U.S. indicators on consumer inflation and weekly jobless claims.


Sterling fell from two-month highs after area growth, while record strong last quarter, undershot expectations. Britain’s economy enjoyed record growth of 15.5% during the third quarter which followed an historic plunge of 19.8% in the second quarter. Forecasts had called for slightly stronger Q3 growth. Moreover, growth numbers for September offered evidence of the economy losing momentum even before the country reimposed fresh restrictions to curb soaring Covid cases. With or without a Brexit deal, the U.K. economy appears headed for a rough winter, a bearish outlook that’s caused the pound to pare its gains.


The euro inched higher as caution returned to markets. The single currency had rallied to two-month highs this week but reversed course after encountering a cement ceiling. Euro bulls are a bit wary of pushing the single currency too high as they perceive a line in the sand by the ECB over currency appreciation. Persistent euro strength would be bad for area growth and inflation prospects, given that exports are a leading growth engine for the bloc.


The dollar kept broadly flat on the day after mixed numbers on the U.S. economy largely offset. Weekly jobless claims improved more than expected to 709,000 in the latest period, a still historically high level. Consumer inflation slowed to an annual rate of 1.2% in October, down from 1.4% the prior month and below forecasts of 1.3%. The data, on balance, depicted an economy heavily reliant on the Fed’s aggressive stimulus, measures that have weighed on the dollar.


The loonie fell to one-week lows and has shed more than 1 ½ cents from two-year highs clocked on Monday. Canada’s dollar slipped with global markets on the defensive with Dow futures in the red and oil markets paring gains. A lack of much domestic data this week has led the loonie to look to broader market drivers for direction. The next critical readings on Canada’s economy loom next week with consumer inflation (Nov 18) and retail sales (Nov 20).

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