Currency Market Analysis

Dec 06, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar started the week strong and steady as focus remained on a fast-spreading variant of Covid-19, and a fast-approaching meeting of the Federal Reserve. The buck fared mixed but mostly stronger with gains versus the euro and yen, while rivals from Britain and Canada rose from multi-month lows. While it’s still unclear how the omicron variant will impact the global economy, markets are taking comfort from initial reports that suggest its symptoms are mild.  This week marks the quiet period for the Fed before its final meeting of the year next week. Expectations are on the rise for the Fed to announce a faster taper next week, a scenario that could pave the way to an earlier rate hike. This week’s big event risk is U.S. consumer inflation Friday that’s forecast jump at an annual rate of 6.7% for November after October’s three-decade high of 6.2%.

GBP

Sterling rose Monday as investors scaled back anti-pound bets ahead of next week’s meeting of the Bank of England. It’s considered another close call whether the BOE will raise rates from historic lows of 0.10% amid fresh economic uncertainty related to the omicron variant. Like many central banks, Britain’s is wrestling high inflation and receding unemployment. Britain Friday will release its monthly economic report card that’s forecast to show growth slowed to 0.4% in October from a 0.6% increase in September.

EUR

The euro remained on the defensive after it underperformed for the third time in four weeks. Reinforcing the euro’s bearish posture, a gauge of German factory growth surprised to the downside by plunging nearly 7% in October, a sign of faltering momentum at the start of the fourth quarter. A report Tuesday is forecast to show Germany’s influential ZEW survey of investor confidence deteriorated anew in December.

CAD

The loonie rebounded from 2 ½ month lows against its U.S. rival, boosted by rallying oil markets. Crude rose to $68 after falling below $63 last week, the lowest level in three months. It also helped that Canada posted a blockbuster employment report Friday that showed the economy netted 154K jobs in November, an outsized amount that lowered unemployment to pandemic lows of 6%, and raised expectations for the Bank of Canada to hike rates as soon as the spring. Evidence of strengthening economic momentum, coupled with downside risks from omicron, could result in a cautiously upbeat BOC when it renders its final policy decision of the year Wednesday at 10 a.m. ET.


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