Currency Market Analysis

Dec 10, 2020 | Currency Market Analysis

Global Themes

The greenback treaded water with its chin above multiyear lows with attention on both Europe and America’s job market. The euro jumped to session highs after the ECB boosted stimulus and its statement didn’t signal increased concern over currency appreciation. Elsewhere, sterling plunged anew, sinking around 1%, as the failure of overnight Brexit talks increased the risk of a no-deal split at year-end. The new deadline for a post-Brexit trade deal is Sunday. On the other side of the Atlantic today, U.S. jobless claims are forecast to rise and offer more evidence of a moderating economy while consumer inflation is expected to remain tame, giving the Fed latitude to boost stimulus as soon as next week. Stronger oil above $46 pushed Canada’s dollar to new 2 ½ year highs.

EUR

Stronger stimulus from the ECB equated for now to a stronger euro. The euro jumped toward recent 2 ½ year peaks after the ECB increased its QE bond purchases – and deployed other measures – by EUR500 billion to a total of EUR1.85 trillion and extended it “at least until the end of March 2022.” The central bank’s announcement was largely in line with expectations. The euro so far has maintained its buoyancy as the central bank hasn’t signaled increased alarm over the euro’s economy-dampening strength which policymakers may view as more of a dollar weakness development.

USD

The U.S. dollar’s respite was at risk after the latest jobless claims disappointed and suggested the labor market was losing steam at a faster rate. Weekly jobless claims jumped more than expected to 853,000 in the latest period, compared to forecasts of 725,000. America’s recovery continues to lose steam as support from Washington expired and restrictions to slow the rapid surge of Covid-19 led more businesses to layoff workers. Consumer prices showed warmer but still tame inflation. A moderating job market and benign inflation will keep the door wide open for the Fed maintain looser policy for longer, an easy stance that could keep the dollar biased downward.

GBP

Sterling plunged after the latest round of Brexit talks failed to clinch a trade accord which increased the risk of a messy split a month-end. The new deadline for a deal is Sunday (Dec. 13), setting the stage for potential FX fireworks early next week. Britain’s economy is in no shape to endure a no-deal breakup after data showed the U.K. economy slowed sharply to an increase of 0.4% in October which was a fraction of the more than 1% increase in September.

CAD

Canada’s dollar cruised to new 2 ½ year highs, boosted by stronger oil above $46 and a Bank of Canada policy decision this week that didn’t signal alarm over the currency’s surge. Canada’s central bank as expected kept borrowing rates at record lows of 0.25% and vowed anew to hold fire on rate increases until 2023, when it sees low inflation moving sustainably to its 2% goal.


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