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Currency Market Analysis

Mar 19, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar kept its chin up and was on track to eke out a weekly gain, supported by the Fed’s grand expectations for growth this year. Currency moves were largely muted after a choppy week with the dollar mostly firmer against Europe, Japan and Canada. Broader markets took some comfort from lower Treasury yields as the 10-year edged below 1.70% after climbing as high as 1.75% the previous day, a 14-month peak. The buck had fallen to two-week lows this week after the Fed signaled it intended to keep interest rates at rock bottom levels for years to come. Elevated Treasury yields have been game changing for the dollar this year as their uptrend signals growing confidence in America’s economic outlook. Bond market skepticism in the Fed holding fire on rate increases is resulting in upward pressure on yields and the greenback.


Canada’s dollar squandered 3-year highs a day after oil’s worst day since September when prices plunged more than 7% and momentarily fell below $60. Crude prices remained subdued Friday amid worries that Europe’s struggles to combat the coronavirus could dent regional demand for energy. The loonie kept toward session lows after Canadian retail sales fell by 1.1% in January, a mere fraction of forecasts of a 3% fall. While consumer spending has fallen in back to back months, following a 3.4% drop in December, Canada forecast a rosy outlook for February when it sees spending bouncing back by a robust 4%.


Sterling was little changed for the day and for the week with upside capped by a cautious message this week from the Bank of England. The BOE left interest rates just above zero and emphasized a vulnerable U.K. job market whose unemployment rate is expected to worsen before it gets better. Data next week is expected to show that U.K. unemployment rose for the seventh time in as many months with forecasts for it to rise further above 5%, compared to year ago levels below 4%.


The euro slipped against the dollar as the bloc’s struggles to combat the coronavirus added to already elevated economic anxiety in the region. France, the bloc’s No. 2 economy, announced fresh lockdowns to help slow a surge in Covid infections. The prospect of a prolonged recovery from the pandemic-induced recession is keeping pressure on the ECB to strengthen or at the very least extend low rate policy that has weighed on the euro.

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