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Currency Market Analysis

Apr 06, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar’s holiday-inspired retreat subsided as global markets reopened after the Easter break. The buck rose against the euro and yen and recovered from two-week lows against sterling and the loonie. Holiday trading, when market liquidity is low, likely amplified the greenback’s recent decline. Underlying sentiment remains positive for the dollar, particularly after blowout jobs data last week and after the services industry grew at a record rate last month. The dollar is likely to find continued support from the notion that the world’s biggest economy appears to be in the early innings of a vaccine- and stimulus-fueled economic boom. Ordinarily an economy flashing this kind of strength would be consistent with a central bank raising interest rates. But the Fed has vowed not to tighten policy until it’s close to attaining its goals, a narrative behind the dollar’s stalled ascent. 


Canada’s dollar retreated from two-week highs against its U.S. counterpart as global markets went back online after the extended holiday weekend. The greenback’s recovery from a holiday rollover overshadowed a bounce higher in oil to around $60 from a Monday close below $59. Domestic fundamentals may steer the loonie over the balance of the week with Wednesday numbers forecast to show a second straight trade surplus and slightly quicker Ivey PMI business activity, while lower unemployment around 8% is in the cards for Friday. 


The euro slipped from nearly two-week highs against the dollar after area jobs data stood in contrast the brightening picture across the Atlantic. Euro zone unemployment steadied at an elevated 8.3% in February which was higher than forecasts of 8.1%. The data suggested only modest impact to the job market from Europe’s second wave of the virus thanks to government furlough schemes that have cushioned the economy. 


A rally in the U.K. pound to 2 ½ week peaks gave way to profit-taking that knocked it lower. Thin holiday markets were likely a key factor in the pound’s outperformance and climb to mid-March highs. Nevertheless, sterling may have formed a near-term bottom against the dollar with Britain poised to reopen its economy next week which should allow for the real economic healing from the pandemic to commence. 

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