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Currency Market Analysis

Mar 11, 2021 | Currency Market Analysis

Global Themes

Broad declines landed the greenback in its biggest hole in a week. The lower U.S. dollar fell to one-week lows against the euro and sterling, and slipped to two-week lows against the Canadian dollar. The Aussie and kiwi dollars also strengthened along with emerging markets. The buck’s rally to 3 ½ month highs suffered a setback as tame underlying inflation underscored the Fed’s view that any rise in prices would likely prove to be temporary. Reduced fears of runaway inflation pushed Treasury yields lower, diminishing the dollar’s allure. The euro saw some ECB-induced volatility after the central bank left its interest rates at rock bottom levels and announced that its economy-boosting asset purchases would be ‘significantly higher’ over the next quarter. Currencies could see choppy trade today with the president of the ECB, Christine Lagarde, due to speak shortly, an event that will coincide with fresh news on America’s job market. 


Sterling strengthened to one-week highs on the back of stronger global equities, a sign of improved risk appetite, and a weaker dollar. While firmer, the pound kept below a key psychological level against the greenback, a sign of caution ahead of Friday when Britain issues critical growth data. Forecasts suggest the U.K. economy plunged by nearly 5% in January as restrictions to slow the spread of the virus choked off the recovery. Should the January GDP report fare better than expected, it could be the pound’s ticket back above a key threshold against the dollar.


Canada’s dollar rose to two-week highs as oil strengthened and the greenback weakened. A more than 1% rally Thursday boosted oil above $65, keeping recent highs within reach. The loonie barely moved Wednesday after the Bank of Canada left interest rates unchanged at a historic low of 0.25%, while it also maintained its low rate guidance for the foreseeable future. Next up: Canada’s February employment report Friday that’s forecast to show hiring increased by 75,000, a solid amount seen lowering unemployment to 9.2% from 9.4%. 


The euro caught a boost to its highest in a week after tame U.S. inflation this week pushed both Treasury yields and the greenback lower. As expected, the ECB left its lending rates unchanged with the deposit rate at -0.50%. In a bid to slow the recent ascent in European yields that could undermine the recovery, the ECB announced that starting next quarter it would ‘significant’ increase its asset purchases. 


The U.S. dollar pared declines after better than expected jobs data bolstered confidence in America’s economic outlook. Weekly jobless claims improved more than expected with a print of 712,000 in the latest period – one of the lowest readings since the pandemic plunged the economy into recession early last year. The dollar’s jump to 3 ½ month highs suffered a setback in data that dampened fears of markedly higher inflation that could prompt the Fed to change course on policy. While around one-week lows, the dollar stands to benefit from America’s brighter outlook for growth that’s likely to keep Treasury yields biased higher.

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