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Currency Market Analysis

Apr 09, 2021 | Currency Market Analysis

Global Themes

Higher Treasury yields and weak data from Europe converged to lift the dollar off its lows, though the U.S. currency was still on track for its worst week of the year. The euro and yen eased off two-week highs while sterling flirted with two-month lows. Canada’s dollar steadied ahead of the country’s monthly jobs report this morning. The dollar index has shed about 1% this week as weak jobs data validated the Fed’s dovish stance and pledge not to change policy anytime soon. Data this week showing a surprise jump in jobless claims underscored a still uncertain road ahead for the U.S. economy. Treasury yields edged up along with risk appetite, with the 10-year around 1.67%, several basis points above Thursday’s close of 1.63%. Germany’s economy appeared at greater risk of contracting during the first quarter after factory output fell for a second straight month.


The euro backpedaled from two-week highs after data offered a reminder of the bloc’s fragile fundamentals. German factory output unexpectedly fell in February, with a 1.6% drop, which came in the heels of a 2% decline to begin the year. The single currency was still on track to appreciate more than 1% against the dollar this week, boosted in part by accelerating vaccines in top economy Germany that suggested a brighter outlook for growth.


Sterling dangled near two-month lows against the greenback, a broad decline catalyzed by renewed EURGBP strength. The opening week of the spring quarter has been a turbulent one for the pound which was on track for a nearly 2% slide against the euro. After the pound rallied by nearly 5% against the euro last quarter, its best performance since 2015, the pair has succumbed to profit-taking that’s boosted both the euro and the dollar.


The Canadian dollar rose to session highs after blockbuster hiring last month signaled a green light for central bankers to pare back on economic support sooner rather than later. Canadian hiring surged by 303,100 in March, a spectacular amount that dwarfed forecasts of an increase of 100,000, and pushed unemployment down 7.5%, the lowest level in more than a year, from 8.2%. The details of the report were mostly strong as the bulk of the hiring came full-time jobs, while the size of the work force increased, but wage growth moderated to 2% from 4.3%. On the surface, such a robust jobs report would cement expectations for Ottawa to reduce its support to the economy but a third wave of the virus as clouded the near-term policy outlook.

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