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Currency Market Analysis

Apr 19, 2021 | Currency Market Analysis

Global Themes

New week, new lows for the U.S. dollar. The greenback hit a one-month bottom against rivals from Britain and Canada, and its lowest in six weeks against the euro. The buck’s decline has gathered pace on the view that a strengthening U.S. economy would not stoke runaway inflation. Consequently, the market firmly subscribes to the view that the Fed won’t be compelled to raise interest rates anytime soon. A still benign long run outlook for inflation has kept Treasury yields anchored at multiweek lows, dampening the dollar’s appeal. Moreover, stocks on a record run of late has added traction to the dollar’s decline by tempering appetite for safer bets. Focus of the week ahead will be central bank announcements in Canada and Europe on Wednesday and Thursday, and late week data on America’s job and housing markets.

EUR

The euro’s April ascent gained meaningful traction as it finally cracked above major resistance against its sputtering U.S. counterpart. The euro’s surge to early March highs raised the stakes for ECB officials who render a policy decision on Thursday. The euro is sitting on ground that in the past has prompted the ECB to acknowledge its strength as a downside threat to inflation which can lower the price of imported goods. No major policy changes are expected this week but officials could attempt to jawbone the euro to slow its upward momentum.

CAD

Canada’s dollar rolled to one-month highs against its weaker U.S. rival. Oil, while little changed Monday, kept at higher levels above $60, supporting commodity plays like the loonie. The loonie’s gain could be tested by the Liberal government’s new budget that’s expected to be unveiled today, and by a midweek policy decision and new economic forecasts from the Bank of Canada. A BOC that at least hints at the likelihood of rolling back some of its stimulus programs, like its weekly bond purchases, could prove loonie-positive. Canadian inflation on Wednesday ahead of the BOC decision is forecast to jump to 2.3% from 1.1%.

GBP

Sterling jumped to one-month highs against a vulnerable U.S. dollar. Pound bulls, meanwhile, were looking ahead to U.K. numbers this week that could offer signs of the economy turning the corner after its worst year in centuries. While unemployment Tuesday is forecast to tick up to 5.1%, the highest in years, a midweek reading of inflation is expected to rise at a 0.8% annual rate from 0.4%. Retail sales on Friday are forecast to increase for a second straight month.


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