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Currency Market Analysis

Mar 02, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar added to recent gains as it remained underpinned by elevated government bond yields. Sterling neared a two-week low while the euro slipped to a more than three-week bottom. Canada’s dollar was little changed ahead of the nation’s fourth quarter report card today. Wall Street kicked off March with its biggest rally in months which ebbed Tuesday as Treasury yields, which have steadied, kept at elevated levels. The uplift in yields going from a boil last week to a simmer continue to supply the dollar with underlying support. The broadly weighted dollar index notched 3 ½ week highs, gains that could hinge on the tone of remarks from Fed officials, including Chairman Powell Thursday, and America’s monthly employment report Friday. Faster hiring in February would tend to burnish the theme of U.S. economic outperformance, a scenario that could help stiffen dollar tailwinds.


The loonie was broadly rangebound after mixed news on the Canadian economy. Fourth quarter growth proved stronger than expected, expanding at a 9.6% annualized clip which followed record growth of 40.6% in the third quarter and a historic swoon of 38% in the spring quarter. But December growth underwhelmed with a mere 0.1% increase, compared to forecasts of a 0.3% rise after an upgraded 0.8% gain in November. December’s marked slowdown signals a weaker handoff to 2021 with Q1 growth seen at risk of contracting. Still, early estimates peg January growth up around 0.5%.


The euro briefly broke below a key floor against the greenback, hitting a 3 ½ week low in the process. News that German unemployment held steady at 6% in February, despite continued lockdowns, helped to slow the euro’s fall. Calls for continued euro strength this year have been dealt a setback by rising U.S. Treasury yields, a move consistent with the world’s biggest economy helping to lead a global economic recovery. EURUSD appreciated by 9% in 2020, its best annual performance in 4 years.


Sterling neared a two-week bottom against its U.S. counterpart as risk assets wavered a day after Wall Street’s best day in months. The pound appears to be consolidating recent gains that have driven it to nearly 3-year highs against the greenback. The U.K. off to an impressive vaccination campaign continues to cast the economy in a comparatively brighter light which has translated into support for the pound.

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