Currency Market Analysis

Mar 25, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied on caution ahead of key data but not before it climbed to fresh highs for the year. The buck neared two-week highs versus Canada and flirted with seven-week peaks against the U.K. pound. The floundering euro sank to another four-month low. Elsewhere, the Swiss franc and yen kept near eight- and 9-month lows, respectively, with the Aussie and kiwi holding near 7-week and four-month lows. The dollar’s latest rally lent it some technical traction as it cleared critical 200-day moving averages on both a trade-weighted basis and against the euro. The buck continues to draw support from America’s rosy growth outlook that contrasts persistent malaise in Europe where governments have had to impose new lockdowns as they grapple with a third wave of the virus. Key for the dollar’s coming prospects will be jobs data today and consumer spending and inflation on Friday.

GBP

Caution ahead of U.S. data helped the pound stabilize after it neared a seven-week trough against the dollar overnight. The pound’s travails of late have all but evaporated its gain for the year against the greenback. An uncertain outlook for U.K. vaccines amid a row with the EU over supplies has tempered optimism about Britain’s recovery prospects. Moreover, tepid U.K. data have served as a reminder of the economy’s fragile shape as a gauge of consumer spending today underwhelmed which came on the heels of elevated unemployment and weaker inflation.  

EUR

The euro fell to fresh lows for the year as it descended to its lowest level since November. The euro remains hamstrung by economic gloom stemming from the latest surge in the virus that’s hastened more growth-crimping lockdowns. A slower pace of vaccinations, governments’ more limited fiscal firepower than the U.S., and the ECB’s acquiescence of a weaker euro have added traction to the euro’s decline.

CAD

Canada’s dollar hovered around two-week lows as oil slipped anew, and after America released a double-dose of encouraging economic news. Oil remained volatile as it fell below $60 after closing the previous day above $61. Oil markets continue to look to developments in the Suez Canal where a massive ship ran aground, delaying critical cargo through the area, a vital waterway for oil shipments.

USD

The U.S. dollar had its rally validated by a double-dose of favorable economic news. Weekly jobless claims finally cracked below 700,000, printing at 684,000 – a new pandemic low – compared to forecasts of 730,000 from 781,000 the prior period. While lower, the data remains historically high, though below the pre-pandemic peak of 695,000. The final estimate of fourth quarter growth enjoyed a surprise upgrade to a 4.3% annual rate, topping forecasts of a steady 4.1%. But the growth data showed a downward revision to core inflation which slowed a tick to 1.3%, depicting in check price growth that’s supportive of the Fed’s low rate outlook for years to come, a factor that can restrain dollar gains.


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