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Currency Market Analysis

Mar 15, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar is starting the week strong, riding a recent climb in Treasury yields (1.64%) not seen since February 2020. Higher yields generally reflect confidence in the outlook for the U.S. economy. However, in this case, rising expectations for inflation due to the recent $1.9 trillion U.S stimulus bill is feeding a rise in Treasury yields. Strength in the greenback is causing currencies such as the Euro, Japanese Yen, and Australian dollar to give back some of their gains. The pound sterling is stable ahead of the Bank of England rate decision Thursday (March 18), and the Canadian dollar is closing in on 2018 levels against the greenback. U.S February retail sales releasing Tuesday (March 16) will closely be watched and is expected to show weaker data for February. January retail sales jumped 5.3% to start 2021, powered by stimulus checks generating consumer spending. If consumer spending declines, this could temporally cool the recent peaks on treasury yields, possibly resulting in the greenback's weakness. Still, all eyes will be on the Fed's two-day policy meeting set to kick off Tuesday (March 16). Fed Chair Jerome Powell is expected to communicate the Fed's intention to not raise interest rates until the return of pre-pandemic employment levels, maintaining its projection on rates to remain near zero through 2023.


The euro gives back Friday gains due to the greenback's strength and a fall in eurozone government bond yields following the ECB's comments last week. The central bank plans to Speed up bond purchases to jump-start a sluggish economy due to the slow vaccine rollout program and lockdown restrictions curbing economic activity. EURUSD pair will take cues from U.S economic data as well as the Fed meeting this week.


Canada's dollar is on a three-year high, stemming from improving U.S. crude oil prices trading at $65.55 per barrel and better than expected economic data. The BOC signaled last that it would reduce the pace of bond purchases to support recovery. This week's focus will be on the consumer price index forecasted to show a growth of 0.3% from last month's report ( 1.0%), and January Canada retail sales.


The sterling is stable on the backdrop of improving economic outlook and expectations that the Bank of England will not push interest rates below zero, keeping monetary policy unchanged. The focus will be placed in May during the next set of interest rate decisions, touching on the next steps in the bond-buying program by the BOE. Still, progress on COVID-19 vaccinations and plans to loosen lockdown measures are gain drivers for the pound. Last week U.K. growth data was better than expected, raising hopes for a more robust growth this year and a faster recovery.

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