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Currency Market Analysis

Feb 11, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied off its lows in holiday-subdued trade. The euro and Canadian dollar firmed while sterling eased below 2018 peaks. Markets were mostly quiet with much of Asia observing the Lunar New Year holidays. Data setbacks have pushed the greenback toward the middle of its range with upside capped by expectations that the Fed would keep its policy pedal to the metal to help nurse the world’s largest economy back to health. The dollar had its rally to two-month highs halted by weak jobs data, a retreat that was reinforced this week by tepid consumer inflation. Attention circles back to the labor market today with weekly jobless claims forecast to improve toward 750,000 in the latest period from just below 780,000 last time. Better news on the job market would bode better for the next monthly employment report, a scenario that could be constructive for the greenback.


Sterling’s rally to April 2018 highs lost some zip on the eve of Britain issuing its fourth quarter economic report card. The report Friday is forecast to show the economy slowed sharply to a 0.5% rate of growth during the October-December quarter from a sizzling 16% pace in the third quarter. The resurgent coronavirus and the resulting restrictions on business are expected to cast a dark shadow over the economy until the spring. Underwhelming data might only be enough to momentarily slow the pound’s surge, given optimism that vaccines had growth poised for a rapid bounce back from the spring.


The U.S. dollar favored session lows after data offered more evidence of a weak U.S. labor market. Weekly jobless improved a bit to 793,000 in the latest period from a revised print of 812,000 last time. But the data printed far above forecasts of 757,000, and stood more than three times larger than pre-pandemic levels of around 225,000. The job market’s glacial pace of improvement justifies the Fed’s dovish bias which could leave the dollar vulnerable to increased weakness over the short run.


The euro notched late January peaks against the subdued greenback. The euro has capitalized on setbacks to the dollar from lackluster U.S. data that bolstered conviction in the Fed staying the low rate course over the foreseeable future. EURUSD’s bounce above two-month lows has pushed the pair to the middle of a four-cent range so far this year.


Oil wavered from recent peaks but not the commodity-correlated Canadian dollar which eked out a new 3-week high against the groggy greenback. The price of oil has appreciated by $10 so far this year to $58, the highest in more than a year. Meanwhile, expectations of stronger growth this year from the Bank of Canada also have boosted the loonie. Canada’s next major data release arrives with a Feb. 17 survey of consumer inflation.

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