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Currency Market Analysis

Nov 19, 2020 | Currency Market Analysis

Global Themes

Safety buying pulled the U.S. dollar above one-week lows as virus and growth concerns eclipsed optimism over a vaccine. The dollar enjoyed modest, though broad based, gains against all of its G10 rivals. Upside for the dollar was checked by expectations that accelerating infection rates and economic scarring could worsen before improving, potentially spurring the Fed to beef up its already copious amounts of monetary stimulus. Meanwhile, expectations for Washington to ramp up fiscal stimulus have all but dissipated during the lame duck period, potentially pushing off new aid until after President-elect Joe Biden takes the reins in late January. Look for markets to take additional cues today from fresh readings on the world’s biggest economy with numbers due on weekly jobless claims, the Philly Fed index and existing home sales.


The U.S. dollar maintained a gain after fresh signs of a moderating U.S. economy contributed to subdued risk appetite. Weekly jobless unexpectedly rose, climbing by more than 30,000 to 742,000. Forecasts had called for a modest improvement. Mounting signs of a moderating economy won’t alter the dollar’s otherwise downbeat outlook given that it will dial up pressure on the Fed to strengthen stimulus to limit economic scarring from soaring Covid infections and renewed business restrictions.


The U.K. pound wilted from one-week highs as weaker global stocks and renewed concerns about soaring Covid infections whet some appetite for safety in the greenback. Brexit uncertainty and weaker than expected data on Britain’s factory sector added to the pound’s pullback. The pound would be vulnerable to a further loss of altitude if British retail sales on Friday should disappoint. Forecasts suggest consumer spending stalled in October after jumping 1.5% in September.


The euro slipped on the day and was broadly flat for the week as renewed anxiety over the worsening pandemic pushed investors to seek shelter in classic havens like the greenback. Euro rallies have been undercut but expectations that the ECB is three weeks away from beefing up monetary stimulus to help sustain a moderating economic recovery. The ECB’s policy-setting governing council will hold its final meeting of the year on Dec. 10.


The loonie slipped from one-week highs as risk appetite faded, leading to revived demand for safety in the greenback. Wall Street ebbed from record highs while oil markets were subdued, pushing further below $42. Canada’s dollar still enjoys a gain for the week, boosted in part by evidence of a somewhat resilient economy as inflation eclipsed forecasts to the upside, rising at an annual rate of 0.7% in October.

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