Currency Market Analysis

Jan 07, 2021 | Currency Market Analysis

Global Themes

Sobering data from Europe helped the greenback stabilize above multiyear lows. Rallying across the board, the U.S. dollar bounced off its lowest level in nearly three years against the euro, sterling and Canadian dollar. Markets largely shrugged off the chaos that erupted in Washington Wednesday when the Capitol building came under siege by protesters. Markets continue to sidestep near-term growth risks and look ahead to an economy that could get a meaningful jolt from vaccines and stronger support from a Democratic-led Washington. The euro had its rally cooled by sobering news on the bloc’s economy. The euro area continued to battle deflation in December while consumer spending tumbled more than 6% in November. While firmer, the dollar’s downward bias remans intact, particularly ahead of key jobs data over the balance of the week that could highlight a vulnerable recovery.

EUR

Downbeat data from Europe checked the euro’s rise to nearly three-year peaks. Once again, euro zone inflation continued to run below zero, printing at minus 0.3% in December. Retail sales tumbled 6.1% in November, a decline nearly double expectations. The euro’s winning streak is still alive but the disappointing data may prove an excuse for bulls to book some profit.

GBP

Sterling fared mixed as it dipped against the greenback but rose against the cooler euro. Worries about the runaway virus throwing a wrench into Britain’s recovery and potentially leading the Bank of England to push interest rates below zero have put a momentary brake on sterling outperformance. Renewed lockdowns bode bearishly for Britain’s growth outlook and have reopened the door to negative rates that the Brexit deal had seemingly closed.

CAD

Oil kept buoyant above $50, but the loonie slipped Thursday as the greenback’s selloff took a breather. Canada’s dollar appears to be consolidating ahead of the year’s first look at the nation’s job market. Canadian hiring likely moderated for a third straight month with forecasts of a fall of around 27,000 jobs in December. Unemployment is expected to tick up to 8.6% from 8.5%. A weak report would validate expectations for the Bank of Canada to keep interest rates at record lows for the foreseeable future.


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