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Currency Market Analysis

Sep 17, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied near three-week highs, boosted by surprisingly bullish data that kept the Fed on track to reduce stimulus this year. The UK pound and euro stabilized after sinking to one- and three-week lows. Canada’s dollar was little changed and on track for a modest weekly gain thanks to resurgent oil prices. The dollar found a tailwind this week in solid data that assuaged concerns about a marked slowdown in third quarter growth. Inflation leveled off but remained elevated, retail sales unexpectedly rose, and regional business surveys accelerated. The economy continues to zigzag its way to recovery but appears in sound enough shape for the Fed to dial back on stimulus this year. The Fed meets next week and while no changes in policy are expected it could deliver an unambiguous signal it could taper its bond buying program at one of its next meetings.

CAD

The Loonie weathered political risk ahead of Monday’s election and was higher on the day and for the week. Oil prices moderated but at $72 remained within arm’s reach of six-week highs. It also helped that the greenback succumbed to pre-weekend profit-taking after a data-inspired rally to three-week highs. The Loonie isn’t out of the woods when it comes to political uncertainty with the polls showing an extremely tight race between ruling Liberal Prime Minister Justin Trudeau (32%) and his Conservative challenger Erin O’Toole (31.7%). A deadlock outcome could leave the Loonie vulnerable as it could undermine government efforts to tackle the pandemic.

GBP

Sterling kept near one-week lows against its U.S. rival after surprisingly sobering news on the UK consumer. Retail sales unexpectedly sank 0.9% last month which followed July’s plunge of nearly 3%. The data added to economic uncertainty and sprinkled cold water over prospects for the Bank of England to raise interest rates from 0.1% during the first half of 2022.

EUR

The euro steadied around its lowest level in three weeks against the greenback as upbeat U.S. data pushed Treasury yields higher, boosting the greenback’s allure. The euro zone today confirmed that area inflation rose by a red hot 3% in August, the hottest in 10 years. Still, the ECB expects inflation to fade in the months ahead and thus not require a policy response to nudge it lower.


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