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Currency Market Analysis

Feb 04, 2021 | Currency Market Analysis

Global Themes

The U.K. pound stabilized above two-week lows after the Bank of England left its interest rate at record lows and signaled a higher bar to pushing it below zero this year. Ahead of the BOE’s first policy announcement of the year, sterling, succumbing to broad based greenback strength, had slipped to a Jan. 18 low. The U.S. dollar, meanwhile, continued its foray higher as it notched fresh two-month peaks overall, and its strongest in two month versus the euro. Better news on the U.S. economy has furthered the notion of American outperformance, boosting the dollar. ADP reported surprisingly brisk hiring this week, while U.S. services growth proved the strongest in nearly two years in January. More influential U.S. jobs data looms today and tomorrow. Canada’s dollar edged lower but had its fall slowed by oil keeping buoyant and above $56.


The loonie fell against its U.S. rival but declines were slowed by oil markets remaining buoyant and above $56, the highest level in more than a year. The loonie is likely to adhere to the range ahead of influential employment data Friday from both sides of the border. Any sign that Canada’s economy is losing some of its recent resilience could leave the loonie vulnerable. Consensus expectations call for a loss of 47,500 Canadian jobs in January which is seen increasing unemployment to 8.9% from 8.6%.


The U.S. dollar was camped around two-month highs following fresh evidence of the U.S. economy accelerating after a recent slowdown. Weekly jobless claims improved more than expected, falling to a still-high 779,000 in the latest week, below forecasts of a print of 830,000. The news comes on the heels of stronger than expected ADP hiring this week and services data that showed the fastest activity in nearly two years while the employment index of the services data showed faster hiring. Consequently, confidence is growing that America’s labor market bounced back after a December setback. Should the payrolls report cap off a solid week for the U.S. economy it could allow for another leg higher for the greenback.


Big news today as the euro broke below key psychological support for the first time in two months. Euro sentiment has deteriorated in a meaningful way as European lockdowns to slow the virus pump the economic brakes, casting the bloc in a dimmer light compared to the U.S. where data hint at the world’s biggest economy emerging from a recent slowdown.


Sterling rebounded from more than two-week lows after the Bank of England left policy unchanged while its optimistic outlook for growth this year pushed the bar higher to prospects of negative interest rates. A united BOE voted 9-0 in favor of keeping its base rate, the Bank Rate, at a record low of 0.1%. On negative rates, the rate setting monetary policy committee said that area banks would need at least six months to prep for subzero lending rates. Meanwhile, Britain’s rapid vaccine rollout suggests that six months from now the economy will be in a better place and less likely to need negative rates. A door perceived as all but closed to negative rates could prove decidedly pound-positive going forward.

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