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Currency Market Analysis

Feb 01, 2021 | Currency Market Analysis

Global Themes

Broad gains Monday allowed the U.S. dollar to extend its January rally. The dollar index climbed to two-week peaks and rose to its highest in at least two months against the yen and Swiss franc. The buck gained against the euro, sterling and Canadian dollar but signs of improved risk appetite supported emerging markets. Wall Street appeared poised to rebound from its worst week since October. Still, not everyone was jumping with both feet into risk assets which is buoying the greenback. The latest bout of market volatility could see some fundamental stirring this week in big data from around the world and the year’s first gathering of the Bank of England. America’s nonfarm payrolls report Friday will be among the marquee events with forecasts of tepid hiring of around 50,000 in January. 


The loonie softened against the firmer greenback as still-volatile stock markets limited appetite for riskier assets. Oil keeping above $52 helped to limit declines for the Canadian currency. Canada’s top event risk this week is the nation’s monthly jobs report on Friday. Forecasts suggest Canada shed nearly 50,000 jobs in January which if realized would mark the second negative reading in as many months. The expected hiring setback is forecast to push unemployment up to 8.9% from 8.6%.


Sterling enjoyed a data-inspired boost against the euro but was little changed against the firmer greenback. The pound kept near but below recent peaks as it consolidates a rally that’s pushed it to nearly three-year highs against its U.S. counterpart. Britan’s main event this week is the Bank of England’s policy decision Thursday. A BOE that’s cautious on Britain’s growth outlook could keep negative borrowing rates in the conversation, a theme that’s tended to weigh on the pound.


The euro favored the bottom of its range, hurt by disappointing data from Germany. Consumer spending in the bloc’s biggest economy posted a record plunge of 9.6% in December as lockdowns to slow the spread of the coronavirus weighed on activity. Meanwhile, unemployment for the wider euro zone steadied, for now, at an elevated 8.3% in December, and is seen at risk of rising once government support schemes expire. The euro faces more event risks this week in euro zone fourth quarter growth Tuesday and inflation the day after. More evidence of the bloc’s recovery losing steam could keep the euro biased lower. 

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