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Currency Market Analysis

Jan 22, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar bounced higher Friday, allowing it to pare weekly declines, as concerns resurfaced about rising Covid cases slowing global growth. Sterling led declines against the greenback after dismal U.K. data kept the door unlocked to negative interest rates. The buck was on course for a weekly loss in the wake of stocks rolling to fresh all-time peaks. But optimism gave way to renewed worry Friday as infection rates rose in China and data across Europe offered evidence of the containment measures undermining recoveries. PMI surveys in the euro zone and Britain contracted while U.K. consumer spending remained in a low gear. Meanwhile, forecasts suggest subdued prints today for U.S. existing home sales and Canadian consumer spending.


The euro bounce to more than one-week peaks against the dollar as outperformance against sterling offered a broad boost. While the euro was on track for a winning week against the dollar, upside has come in fits and starts due to concerns about faltering growth across Europe. Economic pessimism is on the rise amid a lackluster rollout of vaccines while the specter of longer lockdowns threaten to delay a meaningful recovery.


Canada’s dollar retreated from April 2018 highs as risks markets slumped with stock futures down and oil below $52, a more than 2% decline from Thursday’s close above $53. The loonie remained higher for the week thanks to the Bank of Canada sounding a surprisingly bullish note on the outlook for growth. For the loonie to hold firm, a report today on Canadian retail sales would need to validate central bank optimism. Forecasts call for consumer spending to moderate to a 0.1% increase in November from a 0.4% gain the month prior.


Sterling tumbled from nearly 3-year highs after bearish domestic data strengthened the case for lower U.K. interest rates. Retail sales underwhelmed with a 0.3% increase in December which was only a fraction of forecasts of a 1.2% rise. Britain’s leading services industry shocked to the downside with a PMI print of 38.8 in January, a sharp plunge from an already contractionary 49.4 in December. The pound remained stronger for the week, boosted by Britain’s fairly smooth vaccine rollout that stood in contrast to slower inoculations in the euro zone.

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