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Currency Market Analysis

Nov 17, 2020 | Currency Market Analysis

Global Themes

The greenback was broadly weaker ahead of data that’s expected to show America’s recovery losing steam. The dollar was at or near one-week lows against the euro, yen and sterling. Canada’s dollar was little changed. U.S. retail sales today are forecast to rise for the sixth month in a row, albeit at a slower pace of around 0.5% in October, following a spending spree of nearly 2% in September. The dollar is sensitive to news on the consumer given that it’s the main engine that drives the world’s biggest economy. The buck is also losing favor as vaccine optimism powered Wall Street to record highs, quenching demand for safety. Moreover, progress toward a vaccine has the market more optimistic about longer run growth prospects which for now is overshadowing pessimism over the short run.


The U.S. dollar favored session lows after disappointing news on America’s economy-driving consumer. Retail sales grew for a sixth straight month in October but at a slower pace of 0.3% which undershot forecasts of a 0.5% increase. The tepid tone was cemented by news that September spending got downwardly revised to a gain of 1.6% from the initially reported 1.9% increase. The data offered clear evidence of the economy losing steam given consumer headwinds from elevated unemployment, the spike in Covid cases and expiry of fiscal support from Washington.


The euro drifted higher, touching its strongest level in more than a week against the greenback. The single currency’s rise stems mostly from vaccine optimism that’s fanned appetite for risk, leading many to shun safer bets like the dollar. The euro’s rise could be tested by a speech today by ECB President Christine Lagarde who has voiced concern over the euro’s growth-dampening strength. 


Canada’s dollar fell as risk appetite wavered a day after the Dow industrials closed at a record high. Oil markets also retreated, sapping momentum for commodity currencies that had basked in the glow of optimism over a Covid-19 vaccine. The loonie found another headwind in signs of a moderating economic recovery as local house starts underwhelmed in October, rising at an annualized rate of 214,900 versus forecasts of 222,000.


The U.K. pound dominated its rivals Tuesday on reports that an elusive post-Brexit trade pact could be clinched as soon as this month. The pound continues to wax and wane over prospects for a U.K.-EU trade agreement. A comprehensive trade deal could potentially be the pound’s ticket significantly higher, a scenario that would reduce downside growth risks and lessen the likelihood of the Bank of England deploying negative interest rates. 

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