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Currency Market Analysis

Mar 10, 2021 | Currency Market Analysis

Global Themes

The greenback was spotted an early lead ahead of events today that are likely to sway government bond yields and America’s inflation debate. The buck edged higher against the euro, yen and sterling, supported by higher Treasury yields with the 10-year climbing to 1.56% after ending the previous day below 1.55%. Canada’s dollar was little changed ahead of a policy update today from the Bank of Canada which is expected to maintain record low lending rates of 0.25%. Stocks, bonds and currencies could receive a jolt today from U.S. consumer inflation and a Treasury auction of 10-year notes. Inflation is expected to rise from low levels as higher oil prices are expected to exert upward pressure. Core consumer prices are forecast to steady at an annual rate of 1.4% in February.


A subdued U.K. pound kept near but above recent mid-February lows against the greenback. Expectations that stronger U.S. stimulus could hasten a faster U.S. recovery than Europe has led to a material pullback in sterling from nearly three-year highs. How much scope the pound has to the downside may be gleaned from U.K. growth data Friday which is forecast to take a nearly 5% plunge in January as lockdowns likely throttled the economy.


The euro steadied ahead of key events today that could influence the next move for U.S. Treasury yields and the greenback. The oversold of late euro caught a break Tuesday and gained, as lower Treasury yields caused dollar gains to dissipate. The ECB’s coming policy decision Thursday’s looms importantly for the euro’s near-term direction. The central bank is likely to welcome the euro’s inflationary pullback from 2018 highs, but it’s likely to sound a less confident note with respect to the recovery that’s been hampered by new strains of the coronavirus and a relatively slow rollout of vaccinations.


Canada’s dollar was mostly flat ahead of the Bank of Canada’s 10 a.m. ET update on monetary policy. Forecasts call for no change to Canada’s base borrowing rate of 0.25%, a record low, this week or perhaps for the balance of the year. Given the mixed shape of Canada’s economy, central bankers could let a dove, hawk or hybrid of the two loose. The BOC could sound a cautiously upbeat note in the wake of stronger numbers on growth and inflation. Still, any optimism could be offset by elevated unemployment with Friday data forecast to show the jobless rate remaining above 9%.


Softer than expected core inflation led to a softening in the greenback. Core consumer prices unexpectedly decelerated to a 1.3% annual rate in February from a 1.4% pace in January, where they were forecast to remain. The data, for now, may be warmly received by risk assets as it could help defuse fears of faster inflation. But while the data may momentarily defuse inflation worries, it won’t eliminate them with Washington poised to approve nearly $2 trillion in stimulus to jolt the economy out of its pandemic-induced downturn.

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