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Currency Market Analysis

Apr 08, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar stuck near multiweek lows ahead of data that’s likely to underscore how the economy remains far from what the Fed considers healthy. The buck was at or near two-week lows against the euro and yen while rivals from Britain and Canada rebounded. The dollar outperformed during the first quarter, but is off to a sluggish second quarter start as it hasn’t been able to outrun the Fed’s doggedly dovish stance. America’s central bank this week released the minutes of its last meeting that depicted a high bar to changing course, given that the economy remains far from its employment and inflation goals. The Fed expects that it will be ‘some time’ before the economy makes ‘substantial further progress’ that would allow it to rollback stimulus. That puts the focus today on weekly jobless claims that are expected to improve below 700,000, a still historically high level. Fed chairman Powell speaks today around noon ET.


Sterling recovered from one-week lows against the dollar as a recent bout of weakness faded. The pound’s hot start to the year, particularly against the euro, a rival it appreciated by nearly 5% in Q1, has given way to profit-taking. But keeping the pound down for long has proven challenging, especially ahead of next week when Britain’s economy is expected to begin to reopen which should allow a meaningful recovery to take shape.


The U.S. dollar favored two-week lows after jobs data disappointed. Weekly jobless claims unexpectedly rose to 744,000 in the latest period, while the previous number was revised up to 728,000. Today’s number wrong-footed forecasts of 680,000. With the job market moving in the wrong direction, it underscored this week’s Fed minutes that emphasized how the economy was far from what the Fed considers to be healthy. Data that reinforces the Fed’s dovish stance is likely to keep Treasury yields and the dollar anchored.


The euro held firm near two-week highs against its yield-subdued U.S. counterpart. It’s helped at the margin that, although Europe trails the U.S. in vaccinations and the overall rate of recovery, recent numbers from Europe have shown some resilience which has eased pressure on the single currency. German confidence is on the rise, along with factory activity which rose for a second straight month in February.


A softer greenback helped the loonie rebound from one-week lows. Oil was slightly lower, keeping below $60, which limited fuel for Canada’s commodity-driven currency. A rise domestic Covid cases has injected some uncertainty into Canada’s otherwise improving growth outlook. The loonie is likely to keep to its range ahead of Canada’s jobs report Friday. Canada likely added jobs for a second straight month in March, while unemployment is forecast to ebb to pandemic low of 8%, down from its peak of nearly 14% last spring.  

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