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Currency Market Analysis

Mar 16, 2021 | Currency Market Analysis

Global Themes

The greenback was mildly subdued ahead of fresh news today on America’s main growth engine. The mostly softer U.S. dollar edged lower against the euro, yen and Canadian dollar but firmed versus the U.K. pound. The euro’s boost was data-inspired as a gauge of German investor optimism improved more than expected. Market eyes are set on the U.S., with retail spending on tap today followed by the week’s main event Wednesday: A policy decision and new economic forecasts from the Federal Reserve. Forecasts call for retail sales to slip about 0.5% in February, as consumers caught their breath after they stepped up spending at the fastest pace in seven months in January. Any decline in spending could prove to be a blip given the sunny outlook for growth as a massive $1.9 trillion in stimulus readies to course through the economy.


Canada’s dollar steadied near 3-year highs as weaker oil and a softer greenback largely offset. Oil slipped below $65 which caused the loonie to lose some traction after it clocked February 2018 highs earlier this week. Caution ahead of a policy decision by America’s central bank, the Fed, also contributed to rangebound trade for USDCAD.


The U.S. dollar largely weathered a surprise plunge in consumer spending as the pieces appeared in place for faster consumption in the months ahead. Retail sales tumbled 3% in February, a much bigger slide than forecasts of a 0.5% fall. The rearview mirror sketched a bullish disposition of the consumer as January retail sales proved even stronger with an upgrade to 7.6%. The market may be inclined to look past the latest number and ahead to expectations of faster spending once many Americans receive their $1,400 relief checks.  


The euro found some poised following better than expected data from the bloc’s biggest economy. German investor confidence brightened more than expected as the influential ZEW survey jumped to 76.6 in March which was more than 2 ½ points above forecasts of 74. Underlying euro sentiment remains wobbly after the ECB last week announced it would increase its support to the bloc’s vulnerable recovery that’s been hampered by slow vaccinations. 


Sterling fell to one-week lows against the dollar, a currency supported by elevated Treasury yields with the benchmark 10-year holding its chin above 1.6%, near the highest level in a year. Caution ahead of a Bank of England policy decision Thursday also limited upward mobility for the pound. Britain’s central bank is expected to keep interest rates at a record low of 0.10%, putting the focus on whether its statement plays up a stronger outlook for the U.K. economy or if it should flag continued elevated uncertainty over the short run do to the pandemic.

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