Hopes for new stimulus package keep dollar’s safe haven gains in check
The US dollar regained lost ground yesterday afternoon when equities sold off. Global financial markets are watching Washington DC for any news on stimulus negotiations. Markets expect Covid cases to increase significantly as winter in the Northern Hemisphere approaches with the Chinese renminbi expected to continue to benefit. The UK and EU continue to bicker on a new trade agreement with the pound and euro largely reflecting a last-minute agreement.
“Anything worth doing is worth overdoing.”
October 20, 2020
EUR/USD 1.1815 GBP/USD 1.2934 USD/CAD 1.3183 AUD/USD 0.7030 USD/JPY 105.68 USD/CNH 6.6749 USD/ILS 3.3827 USD/MXN 21.1637 USD/CHF 0.9076 USD/INR 73.4713
US Housing Starts for September came in weaker than expected and prior month was revised lower. Building permits were slightly higher than expected. The dollar is flat this morning after rallying back yesterday afternoon. Election uncertainty will give the greenback a bid but look for the dollar to resume its sell-off later this quarter.GBP
The pound is weaker after Boris Johnson’s rhetoric around preparations for an Australian-style deal. Markets appear to be pricing in a compromise being reached over the next couple of weeks. Australia has no trade agreement with the EU and so relies on World Trade Organization rules. Should the UK and EU fail to reach an agreement between now and year end, the UK will essentially “crash-out” of the EU causing a huge short-term impact on the UK and EU economies and weaker GBP and EUR.EUR
The euro is stronger despite Irish PM, Micheal Martin, announcing new lockdown measures for 6 weeks in attempt to curb the virus spread before Christmas.
The euro gained roughly 10% from mid-May to beginning of August. Since then, it has traded in a range between 1.16 and 1.20. Once the US election is over, many FX market participants believe the euro will resume its climb to test the 1.25 level.CAD
After rallying for the past two days, the Canadian dollar is weaker this morning with the loonie now in the 1.3150-1.3200 trading range. The oil price is flat.
Yesterday’s OPEC meeting saw bearish views on oil demand and no discussion on supply cuts to support price. Look for the price of oil to increase on a new stimulus package and decrease on news of Covid lockdowns.ASIA/PACIFIC
The People’s Bank of China set the daily renminbi fixing below 6.7 for the first time since April while the off-shore CNH traded at its strongest level since June 2018.
The Japanese yen weakened after two days of holding steady. The currency seems to be in a holding pattern in front of the US election trading in an ever-tightening range of 105-106 since summer.
For more analysis on FX markets or information regarding SVB's FX services:
See all of SVB's latest FX information and commentary at www.svb.com/trends-insights/foreign-exchange-advisory
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