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Currency Market Analysis

Apr 21, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar bounced off its lows as rising Covid-19 cases dampened optimism about a global recovery. The dollar fell against the yen, another safe play, but rose above recent lows against the euro, sterling and Canadian dollar. Risk appetite has moderated this week as Covid-19 cases climb, particularly in big economies like Japan and India. The rise in coronavirus infections has clouded the outlook for a global recovery, weighing on risk assets like stocks. Consequently, the Dow has backpedaled from record highs, while oil has dropped towards $60 from one-month highs above $64. Currencies are also treading water ahead of major central bank meetings over the coming week. Canada issues an update today, followed by the ECB Thursday, and the Fed on April 28.


The loonie stuck near the bottom of its range as subdued global markets overshadowed higher Canadian inflation. Typically higher inflation would cement the case for the Bank of Canada to rollback stimulus as soon as today. Canadian consumer prices rose at a 2.2% annual rate in March, the highest in a year, a print that was just below forecasts of 2.3%, and followed a 1.1% increase in February. A gauge of core inflation jumped more than expected to 1.5% from 1.3%. The BOC issues a policy decision and fresh economic forecasts today starting at 10 a.m. ET. A tone that plays up near-term economic uncertainty and keeps its weekly bond purchases at C$4 billion could leave the loonie vulnerable to further declines.  


Sterling declined from more than six-week highs versus the dollar as subdued risk sentiment overshadowed more signs of a recovering UK economy. A day after unemployment fell for the second straight month, area inflation rose to 0.7% in March from 0.4% in February. Concrete evidence of the economy re-accelerating after its worst year in centuries bodes bullishly for sterling’s underlying prospects. Britain issues retail spending Friday that’s forecast to rise for a second straight month.


The euro slipped from nearly seven-week highs against the greenback as subdued investor confidence buoyed safer assets. Recently higher flying assets like the euro and stocks are losing ground as rising Covid-19 cases dampened enthusiasm about a sustainable global recovery. Euro bulls, meanwhile, are taking some chips off the table ahead of Thursday’s ECB meeting. No major policy changes are expected but central bankers could seize the opportunity to talk down the euro whose strength puts downward pressure on already too low inflation at 1.3%.

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