Daily Currency Update

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Inflation concerns tampered by COVID-19

USD - United States Dollar

The cost of consumer goods in the US increased at a higher rate than forecast, and in normal times it would imply that a central bank may raise interest rates. These are not normal times.

In the US, COVID-19 related deaths topped 164,000 and as of today confirmed cases rose 4.1% in the past week. And while employers added nearly 1.8 million jobs last month, the expected economic rebound has been rather soft.

The Consumer Price Index increased 0.6% in July on a seasonally adjusted basis, the same increase as in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.0 percent before seasonal adjustment.

The US dollar crept higher Tuesday amid a souring demand for risk. Discussions surrounding the next phase of COVID-19 relief remain at loggerheads with Democrats and Republicans at an impasse. With critical income support platforms now at risk for an extended period there is a sense of nervousness creeping into markets. Failure to restore unemployment benefits will leave a huge whole in consumption and could force the US even deeper into recession. The Dollar index pushed back through 93, hitting a one-week-high. Safe haven demand should continue to prop up the dollar if negotiations continue.

Key Movers

The euro slipped back below 1.1750, drifting off intraday highs at 1.18 amid a broader USD uptick. The single currency enjoyed early momentum following a ZEW survey of economic sentiment showed a significant improvement in German optimism. With Europe’s engine room gaining in confidence there is hope the EU will enjoy a swift recovery as we move through the latter half of 2020 and into 2021, ensuring the euro remains well bid through the medium term.

The Great British pound retraced early gains and again failed to hold onto an extension beyond 1.31 as a US dollar uptick and dour labor market report dampened demand for the resurgent pound. Data showed job losses reached their highest level in more than 10 years throughout the second quarter, a stark reminder just how much damage was done in the early days of the pandemic.

The Australian dollar opens lower this morning having drifted off intraday highs at 0.7190 overnight amid heightened concerns US lawmakers will not be able to reach an agreement on COVID-19 relief measures while tensions with China remain frosty. The risk of protracted negotiations is significant as it delays critical unemployment benefits and income support measures currently propping up consumption. A long-term freeze on support will essentially bring consumption to grinding halt. The uncertainty meant demand for risk has soured Tuesday forcing the AUD back below 0.7150 to intraday lows at 0.7135.

Expected Ranges

EUR/USD: 1.171 - 1.179 ▼

GBP/USD: 1.300 - 1.309 ▲

AUD/USD: 0.711 - 0.717 ▲

USD/CAD: 1.323 - 1.334 ▼