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Currency Market Analysis

Jun 22, 2021 | Currency Market Analysis

Global Themes

America’s dollar rose toward multimonth highs as focus remained on the outlook for more hawkish Fed policy. Broad gains lifted the dollar against the euro, sterling and Canadian dollar. Dollar sentiment received a significant shot in the arm last week after the Fed sketched a brighter outlook for growth and forecast multiple interest-rate hikes in 2023. The spotlight stays on the Fed with Chairman Jerome Powell testifying today on Capitol Hill. Remarks that play up a strengthening economic recovery would reinforce the Fed’s more hawkish stance and support the greenback. Still, the buck’s pop largely stems from the market paring back on bearish bets rather than the building of bullish positions. Ahead of Mr. Powell’s 2 p.m. ET testimony, a report on U.S. existing home sales is expected to extend a weakening trend. 

GBP

The stronger greenback and subdued global markets weighed on sterling, keeping it within reach of two-month lows hit Monday. The softer pound had its decline slowed by data showing the fastest UK factory growth in decades. While the dollar is largely dictating sterling sentiment, things could change if the Bank of England Thursday should follow in the Fed’s hawkish footsteps and set the stage for an eventual normalization in UK monetary policy. The BOE is widely expected to keep its key lending rate steady at a record low of 0.10%. 

EUR

The euro was subdued a day after it bounced above more than two-month lows against the greenback. The euro’s short-term picture dimmed after the Fed telegraphed a more hawkish outlook for monetary policy the diverged from the ECB’s steady hand for the foreseeable future. Moves in the single currency were limited ahead of key data over coming days that if consistent with a broadening recovery would tend to buoy the euro.

CAD

A firmer greenback and oil off its peak kept the loonie near eight-week lows. The loonie has fallen prey to the Fed’s more hawkish policy guidance that has injected uncertainty into the outlook for Ottawa to hike borrowing costs ahead of Washington. Central bank policy divergence played a role in USD/CAD’s slide in early June to six-year lows. The loonie will look for a fundamental steer from domestic retail spending data Wednesday that’s forecast to snap to a two-month winning streak.


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