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Currency Market Analysis

Nov 18, 2020 | Currency Market Analysis

Global Themes

America’s downtrodden dollar pared losses after slumping overnight to fresh one-week lows. The euro, yen and sterling firmed against the greenback along with the Canadian dollar as the party rolled on for risky assets. Wall Street futures rose, keeping indices near record terrain while the price of oil topped $42, the highest in a week. While riskier stocks continued to rally on the back of vaccine optimism, the dollar has been left behind. The dollar is sputtering as more signs point to the Fed coming to the rescue with stronger stimulus to help shore up a moderating recovery. U.S. retail sales this week underwhelmed and offered stark evidence of the economy losing vigor due to an absence of fresh support from Washington and a still-raging pandemic that is leading to increased economy-crimping restrictions on many businesses. The relentless rise in Covid-19 infections may be a sign that risky assets are skating on thin ice.


Higher stocks, oil and area inflation lifted the Canadian dollar to nearly one-week peaks. Vaccine-inspired risk-on sentiment buoyed commodity currencies at the expense of their U.S. counterpart. Meanwhile, Canada reported an uptick in consumer inflation to a 0.7% annual rate in October which was several ticks above forecasts and a few above the previous month’s 0.5% increase. Stripping out volatile food and energy prices, core inflation, as measured by the Bank of Canada’s “common” index, rose a notch to 1.6%, keeping below the central bank’s 2% goal. Total inflation running so long is consistent with the BOC’s forecast of low interest rates for years to come, suggesting the loonie is unlikely to benefit much from the still-low level of inflation.  


The euro marched to fresh peaks, its highest in 9 days, as the dollar continued to sputter as the raging pandemic darkened the near-term outlook for the world’s biggest economy. Euro rallies, though, have been undercut by caution that it could lead to more aggressive action from the ECB which has signaled more stimulus as soon as next month. The euro is perched dangerously near the top of its range and not very far from highs for the year.


The U.K. pound scored one-week highs as higher than expected area inflation suggested a somewhat lower risk of the Bank of England adopting negative lending rates. The pound also benefited from dollar weakness and still-flickering hopes of a post-Brexit trade deal between London and Brussels. British consumer inflation rose at an annual rate of 0.7% in October, just above forecasts and two ticks above September’s 0.5% increase. But at less than half of the BOE’s 2% goal, inflation continues to run dangerously low, a stark reminder of the economy’s weak shape.  

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