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Currency Market Analysis

Apr 01, 2021 | Currency Market Analysis

Global Themes

All eyes are on the U.S. economy to see how the greenback follows up its best quarter in years. The dollar kicked off the second quarter on mostly steady ground against the euro, yen and sterling, while the Canadian dollar slipped after it ended the first quarter as the top G10 currency. The trade-weighted dollar index appreciated by 3.5% in January-March, its best quarterly performance since June 2018. The dollar has found a supporting cast in America’s robust vaccine drive that, along with aggressive stimulus, has the world’s biggest economy poised for its strongest year of growth in decades. Elevated U.S. optimism saw the 10-year Treasury go from below 1% at the start of the quarter to above 1.7% at the end for its biggest quarterly jump since 2016. Next to sway the buck are key jobs and manufacturing data today, followed by the always-important nonfarm payrolls tomorrow.


The dollar pared Q1 gains after the weekly snapshot of the job market disappointed. Weekly jobless claims jumped to 719,000 in the latest period from a revised 658,000 – a pandemic low – the previous week. While the data won’t impact Friday’s nonfarm payrolls report, they still depict the job market recovering in fits and starts. Forecasts for the Friday jobs report anticipate a strong gain of around 650,000 jobs, compared to the 379,000 netted in February. How the dollar fares following the jobs report may be obscured by the long holiday weekend when many regions will be closed for Good Friday and Easter Monday.


Sterling debuted the second quarter broadly steady with trading activity subdued ahead of the long holiday weekend for Europe. Amid the holiday backdrop, the pound shrugged off news that British manufacturing growth enjoyed a surprise upgrade in March. Sterling underperformed against the stronger dollar last month but moves to the downside were slowed by the rosy outlook for U.K. growth thanks to Britain’s solid vaccination campaign that has many businesses poised to reopen this month.


The loonie was somewhat subdued after it proved the G10’s strongest currency during the opening quarter of the year. Canada’s dollar continues to draw support from improving growth prospects that were underscored by news this week that the economy grew at a faster than expected 0.7% rate in January, which is likely to bolster central bank confidence in the outlook, and potentially allow policymakers to dial back on stimulus as soon as later this month.


The euro edged higher after closing the first quarter with a 4% swoon against the greenback. France, the bloc’s No. 2 economy, going on another lockdown threatens to keep the single currency on the defensive for the foreseeable future. Underscoring euro negativity, EURGBP depreciated by nearly 5% in Q1, its worst quarterly performance since 2015.

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