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Currency Market Analysis

Jan 25, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar was mostly flat ahead of a busy week that will see the Federal Reserve command center stage. The buck was little changed against the euro, sterling and Canadian dollar. Market sentiment was subdued as the world economy showed more signs of fatigue over the slow rollout of coronavirus vaccines. Markets remain caught in a tug of war, keeping currencies to a range. Bears are holding near-term sway, yet the bulls are heartened by hopes of a stronger recovery later this year once more people are inoculated. The euro slipped after German business optimism fell more than expected. The week ahead features U.K. unemployment Tuesday, a midweek Fed policy decision, and key growth numbers from the U.S. and Canada on Thursday and Friday, respectively.


Subdued stocks and oil markets translated into a broadly steady Canadian dollar. Oil pared early an gain and was little changed slightly above $52. The loonie clocked fresh April 2018 on Thursday, only to end last week little changed. The strong loonie has had its rally slowed by signs that Canada’s economy slowed sharply in December. Canada issues its November economic report card Friday which is forecast to grow at a steady 0.4% pace for a second straight month.


Fresh off a winning week, the euro lost ground as attention refocused on Europe’s disappointing Covid-19 vaccine rollout and data painted a weakening picture of growth in top economy Germany. The Ifo index of business morale decelerated more than expected to 90.1 in January, the lowest level in 6 months. Fundamental headwinds on the euro could strengthen this week if more data offer evidence of a moderating pace of recovery.


A steady U.K. pound Monday remained camped close to multiyear highs. Sterling was subdued along with broader risk sentiment on concerns about Covid-19 restrictions undermining near-term growth prospects. The pound faces a key event risk in Tuesday jobs data. Unempoyment is expected to extend a rising trend to above 5% in the latest period, a higher level that if realized would suggest a further slowing in consumer spending. Sterling fell on Friday after retail sales surprised to the downside.

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