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Currency Market Analysis

Apr 20, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar stabilized a bit after falling overnight to more than six-week lows. The euro, yen and sterling rallied to nearly seven-week highs, while the Canadian dollar kept within reach of one-month peaks. Dollar strength has fizzled this month as many expect the world’s largest economy to boom without stoking runaway inflation. The decline in inflation fears have led to dollar-negative yield erosion with the benchmark 10-year Treasury stable around 1.6%, well below recent 14-month peaks of 1.77%. While dollar sentiment has dimmed recently, scope for a significant slide could prove somewhat limited if attention turns to the U.S. economy outperforming its major peers. Next to drive currencies will be a Bank of Canada decision Wednesday, followed by an ECB announcement and U.S. jobs and housing data Thursday. 


The loonie held steady and not far from one-month highs, boosted by oil keeping its chin above $63 and close to one-month peaks. The loonie didn’t move much this week after Canada’s government rolled out billions in new deficit spending to help spur a strong and sustainable recovery. Attention now turns to the Bank of Canada’s Wednesday policy decision when some are betting on the central bank reducing its economy-boosting bond purchases to C$3 billion from C$4 billion. No change this week could weigh on the loonie. 


Surprisingly lower U.K. unemployment helped sterling rise above major resistance against the greenback to its highest level in more than six weeks. British unemployment unexpectedly fell by a tick to 4.9% in the latest period, compared to forecasts of an increase from 5%. The pound’s rise didn’t last though on expectations that unemployment is still at risk of climbing after the government retires its massive wage support program later this year. Britain issues important inflation and consumer spending numbers on Wednesday and Friday, respectively. 


The euro appreciated to nearly seven-week highs against its U.S. peer, boosted by rising confidence in the bloc’s vaccine program. Europe’s single currency has been heartened by news that the EU has secured another 100 million Covid-19 vaccines, bolstering the region’s recovery prospects. Whether the euro’s rebound and burst above key resistance is for real may be gleaned by an ECB policy decision Thursday where officials could acknowledge nascent signs of an improving economy. 

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