Currency Market Analysis

Jan 26, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar notched one-week highs overnight only to lose some steam as stock futures rebounded. The euro was steady after an earlier fall while rivals from Britain and Canada rebounded from one-week lows. Wall Street futures hinted at a positive start to the day ahead which will see the Fed embark on a two-day policy meeting. The Fed will wrap up its maiden gathering of the year Wednesday and issue a statement at 2 p.m. ET, followed by a press conference by Chairman Jerome Powell. While the Fed this week won’t be issuing new economic forecasts, any hint of better times ahead in the wake of vaccination campaigns would sound a more hawkish tone that could support the greenback.

GBP

A revival in risk appetite pulled sterling out of its biggest hole in a week. The pound, though, remained resilient in the face of news that area unemployment increased less than expected to 5% in the three months to November, the highest since 2016. Sterling bulls continue to hold the upper hand with the pound sticking close to 32-month peaks. The deteriorating trend in U.K. numbers comes ahead of the Bank of England which issues its first interest rate decision of the year on Feb. 4.

EUR

Pessimism about Europe’s recovery prospects kept the euro pinned near recent lows. Europe’s lackluster vaccine rollout threatens to postpone the arrival of a meaningful recovery which is among the leading weights on the single currency. Meanwhile, political upheaval in Italy isn’t helping the euro, but it so far hasn’t materially added to its woes. Italy’s embattled prime minister, Giuseppe Conte, resigned and may attempt to form a new government with aspirations of securing an elusive Senate majority. 

CAD

The loonie hit a one-week bottom for a second time in as many days, only to recover as Wall Street futures firmed and oil strengthened with crude around $53. Lots of potential catalysts loom for USDCAD in the Fed’s midweek policy decision and U.S. and Canadian growth surveys on Thursday and Friday, respectively. Should the Fed take a page out of the Bank of Canada’s playbook and sketch a brighter outlook for U.S. growth from the second quarter, it would tend to strike a less dovish, potentially greenback-positive tone.


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