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Currency Market Analysis

Jan 08, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar held its chin above 2018 lows ahead of the year’s first payrolls report. The buck fared mixed, though, as it edged up against the euro, softened against sterling and was little changed versus Canada. The euro shrugged off news of a surprise improvement in area unemployment as its quick dash out of the 2021 gates gave way to a bout of profit-taking. Meanwhile, a jump in U.S. Treasury yields has translated into tentative support for the dollar. The benchmark 10-year Treasury finally broke above the long-elusive level of 1%. The buck was on course for a losing week amid optimism that a Biden presidency would pave the way to bolder economy-friendly, dollar-negative stimulus. How the buck fares today may hinge on America’s December jobs report. Forecasts suggest a sharp, pandemic-induced slowdown in hiring to around 50,000.


Sterling firmed on Friday against both the dollar and euro but was still on track for a losing week. Soaring Covid cases have thrown a wrench into Britain’s economic outlook as the government has had to ramp up restrictions. Darker growth prospects, meanwhile, have reopened the door for the Bank of England to slash borrowing costs below zero in the months ahead.


The dollar wavered in the wake of disappointing jobs data. America’s economy bled 140,000 jobs in December which wrongfooted forecasts of a gain of around 50,000. While the data offered more concrete news of the U.S. recovery losing significant steam, it helped that hiring was upgraded in October and November, and that unemployment stood pat at an elevated 6.7%. The data so far has done little to dampen markets’ resolve of better times ahead under a Democratic-led Washington that’s expected to deliver more recovery-friendly stimulus.  


Canada’s dollar was little changed after local data showed a bigger than expected loss of jobs. Canadian hiring tumbled by 62,600 in December, compared to forecasts of a loss of 27,500. The first job losses since April nudged unemployment up a tick to 8.6%. The details of the jobs report were mixed as all of the losses came from less meaningful part-time workers. The size of the workforce declined while wages rose at a faster rate of 5.4%. The overall weakness of the report will validate the steady outlook for Canadian interest rates this year.


The euro slipped Friday and hovered a cent below 2018 highs as its quick start to the year led bulls to take some chips off the table. The single currency brushed aside welcomed news that euro area unemployment unexpectedly edged down to 8.3% in November, compared to forecast to tick up to 8.5% from 8.4%. While encouraging, the improvement likely isn’t sustainable in the face of rising Covid cases across the continent that have led to longer lockdowns.

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