Currency Market Analysis

Mar 05, 2021 | Currency Market Analysis

Global Themes

The Fed not flinching over rising market interest rates pushed the greenback to highs for the year. The broad jump boosted the U.S. dollar to three-week highs against sterling and to its strongest in three- and nine-months versus the euro and yen, respectively. Treasury yields rose and the dollar rallied after the Fed chairman Thursday didn’t signal any worry over rising interest rates after the benchmark 10-year note last week reached 1.6%, the highest in a year. The dollar’s yield-driven gain will be put to the payrolls test ahead of America’s February employment report. Forecasts call for faster hiring of around 182,000 for last month compared to the average increase of merely 29,000 from November to January. Solid job growth would tend to keep upward pressure on both yields and the greenback. A lackluster jobs report, on the other hand, could fasten a momentary lid on yields and the buck.

USD

The U.S. dollar raced to fresh multi month highs after a resoundingly positive jobs report validated rising Treasury yields and bolstered the view of U.S. exceptionalism. Nonfarm payrolls jumped by 379,000 in February which was more than double median expectations of 182,000. The hiring spree lowered unemployment by a tick to 6.2%, the lowest in 11 months. The jobs report suggests that the combination of declining Covid cases, rising vaccinations and continued stimulus are starting to bear meaningful economic fruit, a potential recipe to keep the dollar and yields biased higher.

EUR

The euro tumbled to late November lows against its yield-buoyed U.S. rival. The euro might have fallen into a deeper hole if not for better than expected German industrial output whose 1.4% increase in January was two times stronger than expected. It also didn’t help that German factory growth in December got revised to a bigger decline of more than 2%, a sign that the bloc’s largest economy continues to misfire. The euro carries a weaker disposition into next week when the ECB issues a policy announcement on Mar. 11.

GBP

Sterling fell to three-week lows as rising U.S. Treasury yields and the specter of higher U.K. taxes in two years’ time converged to temper bullish sentiment. The pound’s reversal from nearly three-year highs has shaved four cents off GBPUSD’s value, better news for GBP buyers whose costs recently reached the highest since April 2018.

CAD

Canada’s dollar tumbled as stronger oil around $65 wasn’t enough to overshadow the stronger greenback. The U.S. dollar rallied anew after American hiring last month proved far stronger than expected which validated the jump in Treasury yields and added conviction to the narrative of U.S. economic outperformance. The loonie shrugged off news that Canada unexpectedly logged a trade surplus of C$1.41 billion in January from a revised deficit of nearly C$2 billion in December.


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