Currency Market Analysis

Mar 23, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rolled to multiweek highs against a backdrop of weaker stocks and oil markets. The euro favored the bottom of its range while currencies from Britain and Canada were at or near multiweek lows. The buck’s outperformance against Europe boosted it against the Swiss franc, though the safe haven yen appreciated against the otherwise stronger dollar. The erosion in investor confidence stems from the U.S., Europe and Canada slapping sanctions on China over human rights violations, and the still rampant pandemic in core European countries like Germany and France. Upside for the dollar could prove somewhat muted as Treasury yields kept below recent peaks, while one of the Fed’s most outspoken doves, Chairman Powell, begins two days of congressional testimony with his predecessor and current Treasury Secretary Janet Yellen.

GBP

Sterling fell to six-week lows amid an uncertain outlook for U.K. supplies of the coronavirus vaccine. The EU reportedly is to decide this week whether to ban vaccine exports to Britain as the bloc lags behind the U.S. and Britain in rolling out vaccinations, a scenario that undermined recovery prospects. The more upbeat outlook for the U.K.’s recovery hinges on its rapid inoculation rollout. Vaccine uncertainty eclipsed news that Britain’s jobless rate unexpectedly improved by a tick to 5% in the three months ending in January which defied forecasts of an increase to 5.1%.

EUR

Worries about the persistent coronavirus pandemic damaging the bloc’s nascent recovery weighed on the euro, pushing it toward the floor of its range against the greenback. The EU has struggled so much to get ahead of the coronavirus that it’s reportedly considering rationing or banning exports of the vaccine to the U.K., the lead driver behind sterling’s decline to six-week lows. Euro vulnerabilities could increase if timely surveys Wednesday on European business activity improve but get overshadowed by virus fears undermining the recovery.

CAD

A stronger greenback and a 4% slide in oil to below $60 pushed the loonie to 12-day lows against its U.S. counterpart. Weaker commodity markets have weighed on a range of resource-linked currencies, a key factor behind the loonie’s multiday losing streak and the Aussie and kiwi dollars tumbling today by about 1% and 2%, respectively. The relentless virus and the new rounds of lockdowns in Europe have dented confidence about a global recovery, leaving growth-reliant currencies vulnerable.


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