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Currency Market Analysis

Mar 24, 2021 | Currency Market Analysis

Global Themes

A little strength went a long way for the U.S. dollar as it scaled fresh highs for the year. The broadly stronger greenback neared two-week highs versus Canada, and climbed to 6-week and four-month peaks against sterling and the euro, respectively. An improvement in risk sentiment supported emerging markets as currencies from Mexico, South Africa and Turkey edged higher. The buck has shrugged off lower Treasury yields this week and instead has bounced higher given that America is home to less uncertainty and more optimism than counterparts abroad, particularly Europe. America’s economy continues to recover in fits and starts from the pandemic which contrasts the third wave of the virus that Europe is grappling with. The day ahead features congressional testimony by the heads of the Fed and Treasury, and data on U.S. durable goods. 


Oil bouncing above six-week lows helped Canada’s commodity-influenced dollar steady above mid-March lows. Oil rallied by 2% early Wednesday but kept to a lower orbit under $60. Renewed oil market volatility has pushed the loonie from 3-year peaks notched less than a week ago. The next major look at the Canadian economy arrives with a March 31 report on January growth. Canada’s economy is forecast to rise for an eight straight month as it recovers from a record drop of 5.4% in 2020.  


The euro slipped to new 2021 lows and its weakest level in four months against the greenback. Constructive European business surveys were of little use for the single currency, given that the green shoots may not have legs amid the latest lockdowns governments have had to deploy to help combat a third wave of the virus. A preliminary reading of euro zone factory growth unexpectedly jumped to 62.4 in March, compared to forecasts of a decline to 57.6 from 57.9 in February. 


Treasury yields and the U.S. dollar brushed aside disappointing durable goods data, a notoriously volatile survey. The dollar index hovered near fresh highs for the year after durable goods unexpectedly fell by 1.1% in February, which followed January’s robust gain of 3.5%. While disappointing forecasts of a 0.8% increase, the data shouldn’t meaningful alter expectations of brisk first quarter growth of around 5%.


Sterling slid to 1 ½ month lows against the dollar, a decline that briefly erased its gain for the year, after area inflation underwhelmed and emphasized the Bank of England’s cautious stance. Consumer inflation surprisingly slowed to an annual rate of just 0.4% in February versus forecasts of an uptick to 0.8% from 0.7% in January. The pound had its fall slowed by bullish business surveys that underscored the economy’s better prospects once vaccines allow the economy to fully reopen. While it’s down, the pound may not be out if the EU should ultimately decide against halting vaccine shipments to the U.K.

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