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Currency Market Analysis

Mar 08, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar strolled to fresh peaks amid brightening fundamental prospects. The buck hovered near three-week highs against the U.K. pound and its strongest in three and nine months against the euro and yen. Broad gains boosted the dollar versus Canada, and pushed it to one- and four-month peaks versus the Aussie dollar and Mexican peso. The Swiss franc fell to seven-month lows. The dollar index climbed to 3 ½ month highs as higher Treasury yields, with the 10-year around 1.6%, made Wall Street jittery. The dollar has rallied anew lately amid growing confidence in the outlook for the U.S. recovery. Consumers are spending and increasingly receiving Covid vaccines, while employers stepped up hiring last month at a surprisingly robust rate. Meanwhile, final passage could come as soon as this week for President Biden’s massive $1.9 trillion relief plan that is poised to arm many consumers with $1,400 checks.


Sterling remained largely grounded after it dropped a second consecutive week to the stronger greenback. Wall Street futures auguring a weak start added to pound headwinds as it tends to underperform when risk appetite moderates. The pound loitered near three-week lows hit Friday against the dollar with its coming prospects likely tied to how U.K. growth numbers fare on Friday. Forecasts call for a sharp, 4.9% contraction in January growth, the result of renewed lockdowns to slow the spread of the coronavirus, after GDP jumped by 1.2% in December.


The loonie struggled against the stronger greenback but losses were limited after oil climbed to an intraday high of nearly $68, the highest since October 2018. Crude prices have since moderated, however. Canada’s dollar will look for a central bank steer Wednesday which could be a positive one if Ottawa should acknowledge better data of late like faster than expected fourth quarter growth which clocked a brisk annualized pace of 9.6%. Should the Bank of Canada play up brightening recovery prospects it would likely allow the Canadian dollar to hold its own against the otherwise strengthening greenback.


The euro fell to 3 ½ month lows against its recharged U.S. counterpart. Data continues to cast Europe in a comparatively dimmer light than the U.S., a narrative behind the euro’s steady loss of altitude. German industrial output unexpectedly took a 2.5% plunge in January which wrongfooted expectations of a 0.8% increase. The euro faces central bank risk with the ECB issuing a policy decision Thursday at which it is likely to acknowledge a still vulnerable recovery due to new Covid-19 strains. 

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