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Currency Market Analysis

Jan 11, 2021 | Currency Market Analysis

Global Themes

With markets focusing more on the now rather than the later, the greenback cruised to multiweek peaks. Solids gains pushed the buck to one-, two- and three-week highs against the loonie, sterling and euro, respectively. The U.S. unit’s biggest gains came against commodity rivals from Down Under and emerging markets with the Mexican peso down more than a percent. Optimism is in shorter supply as the raging coronavirus continues to accelerate and cast a darker cloud over growth. The pandemic was credited with causing a surprise contraction in U.S. hiring last month, the first in eight months. Meanwhile, a leadership crisis in Washington has added to the souring in sentiment. Focus of the week ahead will be remarks from the Fed chairman Thursday and U.S. data Friday on economy-critical consumer spending.


The euro flirted with three-week lows as a rise in global caution spurred a flight to the safer greenback. Rising U.S. yields have also catayzed an unwinding of bullish bets on the single currency. Europe’s main risk event this week arrives with Thursday’s read on how the bloc’s biggest economy fared last year. The German economy likely plunged around 5% in 2020 after logging a 2013 low of 0.6% in 2019.


The U.K. pound neared two-week lows against the better performing greenback. Accelerating Covid cases have dampened recovery prospects to the point that the market sees a rising risk of the Bank of England adopting negative interest rates to jumpstart the economy. Meanwhile, moderation is in the cards for big-ticket U.K. data Friday on monthly growth and factory output, outcomes that, if realized, could bolster the negative rate debate.


The Canadian dollar along with commodity siblings from Australia and New Zealand fell sharply against the rebounding greenback. Weaker global stocks and oil markets, coupled with higher U.S. Treasury yields, whet some renewed appetite for the big dollar. Canada’s dollar eked out a gain last week but may have been skating on thin ice after weaker than expected local jobs data opened the door for the Bank of Canada to slash interest rates from historic lows of 0.25%.

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