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Currency Market Analysis

Dec 03, 2020 | Currency Market Analysis

Global Themes

Another day, another 2020 low for the greenback. The buck slid to more than two-year lows against the euro and the Aussie, kiwi and Canadian dollars. Against the Swiss franc, the dollar tumbled to early 2015 lows. Sterling reached a fresh three-month high with the Mexican peso at March peaks. Markets see the global economic glass as half-full thanks to progress toward a Covid-19 vaccine and a renewed push in Washington over stimulus. The buck also braced for fresh news on America’s moderating job market with weekly unemployment claims due ahead of Friday’s main event: Nonfarm payrolls. The pace of hiring likely slowed for a fifth straight month to less than 500,000 last month. Should data today on jobless claims and the employment index of the ISM non-manufacturing PMI disappoint it would raise the risk of a negative payrolls print tomorrow, a scenario that could spoke markets and spur safety demand for the dollar.


The U.S. dollar shrugged off better than expected news on the job market as it languished near fresh multiyear lows. Weekly jobless claims improved more than expected, falling to 712,0000 from a revised 787,000. While good news, the level is still consistent with a weak labor market in need of more support from policymakers.


The Canadian dollar rose to fresh two-year peaks against its struggling U.S. rival. The loonie has found twin tailwinds of late from optimism about a Covid-19 vaccine and hopes that Washington is moving, albeit slowly, toward another round of fiscal relief to help struggling households and businesses. Loonie buoyancy could be tested by Canada’s monthly jobs report Friday. November hiring is forecast to slow to an increase of 20,000 from a gain of more than 80,000 in October. Slower hiring would bolster conviction in Canada keeping interest rates low until 2023.


Sterling rose to fresh three-month highs against its sputtering U.S. counterpart. The stronger pound is also a sign that the market is betting on the UK and EU reaching an 11th hour Brexit trade deal that avoids economy-squeezing tariffs from next year. An upward revision to U.K. services growth last month, albeit to still negative territory of 47.6 in November, added traction to the pound’s rally.  


The euro extended a rally to April 2018 highs against the droopy dollar. Much of the euro’s outperformance stems from the dollar’s decline but it helped at the margin that euro zone numbers on services growth and retail sales beat expectations. The euro’s bull run raises the stakes for the ECB which meets a week from today. Central bankers are closely watching currency appreciation given the headwind it puts on growth and inflation.

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