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Dollar continues sell-off

Eyes on the BoE 

The Pound has been trading at its highest levels versus the US Dollar since December 2019 in recent sessions, as the Buck weakens across the board. While the Dollar is lacking any major fundamentals to push it out of its recent weak patch, the Pound is dealing with mixed UK data and a lack of progress in Brexit talks. The next set of Brexit discussions are due to begin on September 7th. Last week, the Jackson Hole Symposium saw Bank of England Governor Andrew Bailey suggest that negative interest rates could be used as part of monetary policy if needed in the future. In the week ahead, several Bank of England representatives, including Bailey, will speak, which could influence the British currency. Additionally, data relating to the UK's services and construction sectors will also be released. 

Hitting 2018 highs

The Euro has been trading at its strongest levels versus the US Dollar since May 2018, with today's interbank rate somewhere in the region of 1.19-1.20. Data released today has shown that Eurozone inflation took an unexpected dip into the negative. The Eurozone fell back into deflation as the coronavirus hit demand, and energy prices fell. The data puts pressure on the European Central Bank ahead of its September meeting—increasing speculation as to which tack policymakers might choose to take. In the rest of the week, Eurozone retail sales and growth rate numbers will also be published, which could give the EUR exchange rate some opportunity to move. 

Labour market in focus 

The US Dollar index, which measures the strength of the Dollar against a basket of other major currencies, has been trading at its weakest since April 2018 as risk sentiment remained prominent in the market. Last week's Jackson Hole Symposium saw Federal Reserve Chair, Jerome Powell, suggest that inflation and employment may be allowed to jump beyond targets, which will keep interest rates lower for longer—another development to put pressure on the US currency. A lot of focus this week for the US Dollar will be on the highly influential Non-Farm Payrolls data on Friday to gauge how the labour market is performing amid the rising coronavirus cases across the pond. 

Expecting contraction 

The Australian Dollar rose against the US Dollar last week, climbing from interbank levels below 0.72 to the region of 0.73. The Australian Dollar to US Dollar exchange rate has been at its highest level since August 2018, while the New Zealand Dollar has been trending at its most robust levels since July 2019. 

This week, the Reserve Bank of Australia opted to keep interest rates on hold at record lows of 0.25% ahead of growth data which is expected to disappoint. If the forecast for an around -6.0% contraction in tomorrow's data is correct, it would be the largest contraction since records began in the 1950s and would indicate the start of the first recession in the nation in around three decades. Meanwhile, it's a quiet week ahead for New Zealand data, but yesterday saw a decline in both business confidence and building permits.  

Commodity currencies outperform 

The Canadian Dollar rose close to 3.0% in the month of August, its most significant monthly gain since June 2019. In terms of monthly performance, it was one of the best-performing G10 currencies, with only other commodity currencies such as the Aussie Dollar and Norwegian Krone besting it. The US Dollar has been trading at its lowest levels against the Canadian Dollar since January 2020. August marks the fifth consecutive month of gains for the Canadian Dollar—its most prolonged series of gains since 2014. Today has shown an upswing in Canadian manufacturing activity, and investors will be looking towards trade balance data on Thursday and labour market data on Friday, which could be influential for the Loonie.