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Currency Market Analysis

Mar 03, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar maintained a firmer footing ahead of important readings on America’s job market over the balance of the week. The buck rose against the euro and climbed to more than six-month highs against the yen. Sterling ticked higher as investors absorbed an economy-supportive budget from Britain’s treasury chief. Canada’s dollar was little changed. While firmer, upside for the greenback may hinge on remarks Thursday from the Fed chairman, Jerome Powell. Any dovish cooing from the Fed chief that plays up low inflation could slow the recent ascent in Treasury yields, the key catalyst behind the buck’s resilience. Also in focus are jobs surveys over the balance of the week that culminate with Friday’s nonfarm payrolls report. Solid results that are consistent with the labor market bouncing back could prove dollar-positive.


Sterling was little changed as investors absorbed a budget update from Britain’s treasury chief, Rishi Sunak. The new budget extended the salary support scheme through September and sketched a lower outlook for 2021 growth which it sees expanding at a 4% rate compared to the previous estimate in November of 5.5%. Mr. Sunak forecast that unemployment, now at 5.1%, would peak around 6.5%, a full percentage point lower than its November projection. The still precarious backdrop for the U.K. economy could lessen fuel to keep the pound biased higher.


The U.S. dollar brushed off mixed signals on America’s job market to keep broadly higher on the day. ADP reported that private sector hiring slowed to an increase of 117,000 jobs in February versus forecasts of 177,000. It helped that the previous report enjoyed an upgrade to 195,000 from the first reported gain of 174,000. A job market recovering in fits and starts could give Fed chairman Powell scope to stay the low rate course when he speaks Thursday.


The loonie was mostly steady and rangebound against its American counterpart as currencies bided time ahead of key event risks over the balance of the week. USDCAD has slipped into a hole this week after Canadian growth Tuesday proved stronger than expected. Canada’s economy grew at a 9.6% annual rate during the fourth quarter, more than two percentage points faster than expected. FX and bond market volatility could see some stirring from Fed chair remarks Thursday and America’s February jobs report Friday.


Downwardly revised German services data weighed on the euro and kept it within striking distance of multiweek lows. The data could stand in contrast to U.S. jobs data that are forecast to show improvement. Divergent growth differentials between a recovering U.S. and a sputtering Europe are largely behind the euro’s somewhat surprising loss of altitude so far in 2021. EURUSD is down around 1.3% so far this year, while it’s shed three cents, or 2.4%, since reaching April 2018 peaks in early January.

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