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Currency Market Analysis

Mar 09, 2021 | Currency Market Analysis

Global Themes

Lower U.S. government bond yields tapped a brake on the greenback’s broad surge to multi-month highs. As a result, the U.S. dollar stepped off 3 ½ month peaks against the euro, and its strongest in seven and nine months versus the Swiss franc and Japanese yen. Sterling and the loonie also outperformed but kept to recent ranges. Global markets continue to revolve around America’s bond market, a key signpost for coming growth and inflation prospects. The 10-year Treasury note remained elevated and above 1.5% Tuesday but down from recent peaks above 1.6%. The move was enough to slow the dollar’s ascent but the still-elevated level of yields suggests bullish momentum remains intact. Interest rates appear to be consolidating ahead of Treasury auctions this week and news tomorrow on U.S. consumer prices. Any whiff of inflation is likely to push both yields and the dollar higher.


Canada’s dollar rose to the upper end of its March range as lower U.S. Treasury yields caused the greenback’s rally to downshift. Caution could shadow the loonie ahead of tomorrow when the Bank of Canada at 10 a.m. ET issues a policy decision. Ottawa is expected to keep its benchmark lending rate unchanged at a record low of 0.25%. Key for the loonie will be whether the BOC acknowledges stronger growth and a brighter outlook or if it should emphasize still-elevated unemployment above 9%, the highest since late last summer. A message that suggests interest rates could rise somewhat sooner than previous projections of 2023 would tend to be loonie-positive.  


The euro found support after sinking earlier to fresh 3 ½ month lows. Sustaining a gain could be challenging for the single currency after revised figures showed that euro zone growth contracted by a bigger than expected 0.7% during the October-December quarter, versus forecasts of -0.6%. Euro selling could slow ahead of the ECB’s Thursday policy decision. But dovish guidance that acknowledges strengthening economic headwinds would tend to keep the euro biased downward.


The pound’s vital signs improved, giving it a lift against the greenback. Lower yields and higher stocks proved a recipe for sterling outperformance. Still, recent pound bullishness has diminished as U.S. fundamentals have enjoyed a marked brightening thanks to better data, continued vaccinations and Washington on the cusp of signing off on a colossal $1.9 trillion Covid relief plan to help reinvigorate the U.S. economy and spur faster consumer and business spending.

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