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Currency Market Analysis

Mar 01, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar index rose to three-week highs, boosted by elevated Treasury yields and expectations for stronger U.S. data this week. The greenback outperformed against its European rivals but slipped against the commodity trio from Canada, Australia and New Zealand. The broader market mood was positive, as lower Treasury yields boosted confidence and had Wall Street poised for a rebound after last week’s bond market-inspired slide. The yield on America’s 10-year Treasury was just below last week’s close around 1.45%. For the year so far, the 10-year has jumped by more than 50 basis points on a mix of optimism about the economic outlook but also worries that bolder stimulus could unleash an unwelcome rise in inflation. On tap this week, Canada issues fourth quarter growth Tuesday, followed by U.S. numbers on manufacturing today and employment Friday. The Fed chairman, Jerome Powell, speaks Thursday. 


The euro edged off November lows but maintained a bearish bias. A darkened near-term outlook for the 19-country economy had EURUSD on pace to depreciate by about 2.8% in March. While euro sentiment could get worse before it gets better, the second quarter could herald reason for optimism if Europe picks up the pace of vaccinations and the economy stabilizes. Data today showed that euro zone inflation improved to a 1.3% annual rate in March from below 1% in February.


The euro made a lackluster March debut as it flirted with two-week lows against the greenback. The euro added to its losses of 0.5% against the dollar in February despite news that European factory growth last month enjoyed a modest upgrade. The euro has tumbled from seven-week highs as higher U.S. Treasury yields partly signal brighter growth prospects on the left side of the Atlantic. Euro zone figures this week that could be influential for the euro include inflation on Tuesday and unemployment Thursday. 


Canada’s dollar, along with commodity cousins from Australia and New Zealand, rose against the otherwise firmer greenback. The commodity group got a boost from higher oil markets with crude above $62. Lower, though still elevated, U.S. Treasury yields and stocks futures signaling gains in early trade also boosted the dollar bloc trio. Key for the loonie this week will by Canada’s fourth quarter GDP report Tuesday that’s forecast to show the economy slowed to a still-sizzling annualized rate of 7.5% after a record rise of 40.5% in Q3. 


A weaker U.K. pound Monday was more than three cents below recent three-year highs against its U.S. counterpart. Still, sterling fared better than the euro and Swiss franc against the dollar, with losses checked by stronger equity markets. It also helped that British factory growth last month enjoyed a modest upgrade to 55.1 versus forecasts to steady just below 55. Next up for the U.K. economy, its economy-driving service sector PMI on Wednesday whose preliminary reading of 49.7 for February edged closer to the key 50 level that separates growth from contraction. 

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