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Currency Market Analysis

Feb 02, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rode a Groundhog Day rally to fresh 2021 peaks. The mostly stronger greenback climbed to two-month highs against the euro, yen and Swiss franc. However, oil’s jumped to one-year peaks above $54 boosted the commodity-driven Canadian dollar. The trade-weighted U.S. dollar index scaled seven-week highs. Broader markets were higher as signs of progress toward new pandemic relief in Washington spurred risk appetite. A smaller than expected contraction in euro zone fourth quarter growth wasn’t enough to arrest the euro’s slide. The 19-country bloc contracted 0.7% in the final quarter of 2020, putting it on track for its weakest year of growth (-6.8%) on record. A risk that first quarter growth could be even weaker than Q4 has contributed to the recent souring in euro sentiment. Sterling was broadly steady ahead of a an important policy update this week from the Bank of England.


The U.K. pound was muted against the buoyant dollar but rolled to May 2020 highs against the euro. Sterling was broadly consolidating a rally that’s hoisted it to 32-month highs against the dollar ahead of a major policy update from the Bank of England Thursday. While no policy changes are expected, the BOE is poised to reveal findings of how negative interest-rate policy, if it needs to eventually go that route, could impact the influential banking sector. A BOE that downplays an imminent risk of negative rates could prove pound-positive, potentially keeping its rally intact. 


The euro skid to fresh lows for the year, plumbing its weakest in two months against the greenback. The euro failed to capitalize on news that the bloc’s economy contracted 0.7% in the October-December quarter, which wasn’t as bad as forecasts of a 1% fall. The euro continues to be dogged by economic fragility as measures to slow Covid-19 have pumped the economic brakes, potentially setting the stage for a second straight quarterly contraction in the first quarter.


An otherwise stronger greenback struggled against the oil-buoyed Canadian dollar. Still, the loonie remained camped toward the bottom of its range in the wake of the U.S. unit’s growing popularity. Oil climbed as high as $55, the strongest level in more than a year. Key for the loonie this week will be Canada’s monthly jobs report Friday that’s forecast show hiring contracted for a second straight month. Consensus forecasts suggest Canada shed 47,500 jobs in January after it lost nearly 63,000 in December. 

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