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Currency Market Analysis

Mar 04, 2021 | Currency Market Analysis

Global Themes

Weaker stocks and elevated yields made for a mostly firmer greenback. The dollar rose against the euro, yen and sterling but steadier oil above $61 supported the Canadian dollar. The buck’s latest leg higher pushed it to five- and seven-month highs against rivals from Switzerland and Japan, respectively. The dollar is faring resiliently despite tepid data this week on private sector hiring and services growth. Yet while tepid, the services data showed the biggest jump in prices in more than a dozen years, an inflationary signal that boosted the U.S. 10-year Treasury yield towards 1.5%. The dollar’s buoyancy could hinge on remarks today from Fed Chairman Jerome Powell and key jobs data today and tomorrow. Any comments from Mr. Powell could be measured ahead of the Fed’s next meeting on March 17, when it will release fresh forecasts for the economy.


The euro kept toward the bottom of a tight range following mixed European data. Euro zone unemployment steadied at 8.1% in January, below forecasts of a rise to 8.3%. While lower than expected, still-high unemployment contributed to a bigger than expected slide in euro zone retail sales which slid nearly 6% in January while December’s gain got revised downward. The data, on balanced, played up European economic underperformance against the U.S., the narrative behind the euro’s bout of weakness.


The U.K. pound emerged a bit subdued a day after Britain’s finance minister unveiled the government’s annual budget. While Rishi Sunak vowed a Mario Draghi-like ‘whatever it takes’ attitude to dig Britain out of its deepest economic hole in centuries he also foreshowed coming tax hikes in 2023 to help narrow the gaping budget deficit. The early talk of higher taxes has dulled the pound’s sheen and turned what had been a key psychological floor for GBPUSD into a ceiling.


The U.S. dollar maintained a broad gain after lower than expected weekly jobless claims were consistent with the economy moving the right direction. Weekly claims rose to 745,000 in the latest period, below forecasts of 750,000, but above the prior period’s upwardly revised 736,000. Signs that the job market is slowly gaining traction could be supportive of faster hiring last month. Forecasts call for February nonfarm payrolls to increase by a solid 182,000 after a lackluster gain of 49,000 in January, and a contraction of more than 200,000 in December.


Commodity currencies eked out gains against the otherwise firmer greenback, a sign of underlying confidence in the outlook for global growth. While the loonie mostly treaded water ahead of an OPEC meeting today, it held its chin higher. The loonie has also drawn underlying support from better than expected news this week on Canada’s economy which the Bank of Canada could acknowledge when it next meets on March 10.

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