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Currency Market Analysis

Jan 12, 2021 | Currency Market Analysis

Global Themes

The greenback edged back from three-week peaks as higher stock futures signaled improved risk appetite. The dollar surrendered some strength Tuesday after climbing to two-week highs against rivals from Britain and Canada and its strongest in three weeks against the euro. The buck’s recovery from 2018 lows remained intact with the U.S. currency holding in positive territory for the week. Wavering risk sentiment has buoyed the haven dollar but the biggest boost has come from the meaningful rise in U.S. Treasury yields. America’s benchmark 10-year yield pushed to new highs Tuesday above 1.16% on expectations for the incoming Biden administration to deliver another major dose of stimulus. Still, the Fed’s low rate pledge over the foreseeable future suggests that upside for the dollar may prove limited.


Not so fast on those bets on Britain resorting to negative interest rates anytime soon. The pound rebounded from two-week lows after comments from Bank of England Gov. Andrew Bailey suggested a lower risk of rates falling south of zero anytime soon. Mr. Bailey noted “lots of issues” with negative lending rates which would be bad for banks. Sterling lost the handle on 2018 highs as the runaway virus threatens a double-dip downturn for the U.K. economy, a worrisome outlook that’s keeping the door ajar to negative rates. 


The euro steadied around three-week lows against the greenback as it continued to consolidate a recent rally to 2018 peaks. The reversal in EURUSD has pulled it below key technical terrain that leaves it vulnerable to further weakness over the short run. EURUSD currently sits below both its 10- and 21-day moving averages. The euro also has fallen prey to a widening in yield differentials in the dollar’s favor. 


The loonie bounced above two-week lows as it shadowed oil and stock futures higher. A 1% rally in crude had oil flirting with $53, the highest in nearly a year. Stocks futures signaled a higher start to Tuesday trade. The upturn in U.S. Treasury yields, coupled weaker Canadian data, has tapped a brake on the loonie’s recent ascension to 2018 peaks. A lack of meaningful Canadian data this week will likely lead the loonie to look to broader markets for its main steer. 

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