U.S. Dollar Climbs as Pessimism Reigns

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U.S. Dollar Climbs as Pessimism Reigns

SEPTEMBER 24, 2020

The U.S. Dollar is trading stronger this morning following yesterday’s risk-aversion bonanza as a reaction to the hopelessness tied to Fed Chairman Jerome Powell’s statements to Congress.

Overview

In the midst of havoc in many fronts, the United States is not emerging stronger after a summer that failed to see Congress pass a second helping hand in recovery. In fact, the Fed and Treasury have tried to get legislators to see the need for a robust rescue bill of spending, but yesterday only confirmed that the pleas are going nowhere until the government faces general elections in November. Data is not painting any rosier a picture as Initial and Continuing Jobless Claims remain high and beating lower estimates.

Oil prices declining is a further sign of lack of optimism in the global outlook and keep hurting the values of Canadian Dollar and Mexican Peso, both down to their weakest level since the beginning of August. Major banks are ready to price-in a weak economic rebound with places such as Goldman Sachs already halving their original expectation for growth in Q4. Certainly, expect the buck to hold if this narrative of doom takes hold.

What to Watch Today…

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EUR

The Euro, much like most major peers against the greenback, has lost all gains from August as it sits at the weakest level since the end of July. The buck’s resurgence is not out of good reasons and recent data from Europe suggests that their expectations should lower as each nation is now concerned with their national safety over mobility and cooperation with the whole bloc.

A European summit scheduled for this week will be held October 1st and 2nd so statements from there will make headlines that could impact the shared currency. Additionally, the IFO German Business survey came in lower than expected and the European Central Bank injected more cheap cash to banks in order to incentivize lending, thus more Euros will be circulating out there.

GBP

The Pound has taken a hit this week but is now the only major currency sneaking in a win over the dollar as it is the one place where data has not entirely disappointed. While the threats of Brexit and separation by Scotland are dark clouds not going away, Retail Sales improved and completely defied the expectation for contraction. After a decline in August, worse was expected for September, but the U.K. keeps surprising here and there.

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