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Currency Market Analysis

Jan 19, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar was on the defensive ahead of a key Senate confirmation hearing today for Treasury secretary nominee Janet Yellen. The buck stepped back from four-week peaks against a basket of rival currencies and its highest level against the euro and six weeks. Broad based softness boosted counterparts from Britain and Canada. Ms. Yellen’s testimony today, starting at 10 a.m. ET, could undercut the buck’s quick start to the year as the former Fed chairwoman is expected to endorse stronger fiscal spending to shore up a recovery that’s shown mounting signs of moderating. Ms. Yellen is also likely to favor a market-driven value of the dollar. The greenback may be punching above its weight and at risk of resuming its downturn once the world economy shows signs of a synchronized rebound.


Canada’s dollar rose above one-week lows as equity and oil markets advanced ahead of a Senate confirmation hearing today for Janet Yellen to become America’s next Treasury secretary. The loonie faces a daunting line up of event risks in domestic inflation data and the Bank of Canada’s first policy decision of the year Wednesday, and Friday when retail sales are forecast to show consumer spending decelerated to a 0.1% increase in November after a 0.4% gain in October. A BOC that should emphasize downside growth risks from the resurgent pandemic would strike a loonie-negative tone. 


The euro bounced above more than one-month lows, boosted by a revival in risk appetite that weighed broadly on the greenback. The euro had slipped to six-week lows Monday in holiday trade when U.S. markets were off to observe Dr. King’s birthday. While firmer, the euro’s near-term prospects remain clouded by higher U.S. Treasury yields that have caught the eye of yield-seeking investors. The euro’s marquee event risk looms Thursday when the ECB issues its first policy decision of the year and likely to reaffirm its low rate stance. 


Sterling shadowed risk assets higher Tuesday, a positive backdrop that pressured the greenback. The pound faces key U.K. event risk this week in consumer inflation Wednesday and consumer spending Friday. Forecasts call for overall inflation to tick up to an annual rate of 0.5% in December, a still low level that if realized would keep negative interest rates in the conversation. Retail sales are expected to rebound with a 1.2% gain in December after a nearly 4% fall in November.

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