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Currency Market Analysis

Apr 22, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied with a defensive bias in central bank-driven trade. The dollar hovered near seven-week lows against the euro after the ECB left monetary policy unchanged. The buck fared better against the yen, sterling and Canadian dollar as Wall Street futures signaled a tepid start to trading, while Treasury yields edged higher with the 10-year around 1.57%. Weaker oil around $61 caused the Canadian dollar to drift below five-week highs. The loonie took flight Wednesday after a hawkish Bank of Canada left interest rates unchanged but scaled back its emergency support to the economy, and upgraded its outlook. A busy day looms ahead with a press conference from the ECB president and U.S. numbers on weekly jobless claims and existing home sales.


The euro kept within arm’s reach of seven-week highs against the greenback after the ECB left interest rates at minus 0.5% as expected. The central bank shared by 19 EU nations vowed to keep borrowing costs at present or lower levels until it sees inflation rising sustainably toward its near 2% goal. A euro that keeps around recent highs in the wake of the ECB decision today could pave the way to further gains over the short run.


The U.S. dollar held steady after another upside surprise for America’s job market. Weekly jobless claims unexpectedly improved, falling to fresh pandemic lows of 547,000 from 586,000 the prior week. Jobless claims tend to be volatile and noisy but they are also trending in the right direction. Evidence of the economy in the early stages of its biggest boom in decades could help to revive a stronger dollar. Key for the buck’s coming prospects will be the tone of next week’s Fed meeting. Central bank acknowledgement of upside growth risks could buoy the dollar.  


A little changed Canadian dollar kept close to five-week peaks against its U.S. rival. The loonie took flight from mid-March lows after a hawkish Bank of Canada scaled back its emergency support to the economy, tapering its weekly bond purchases by C$1 billion to C$3 billion, while it significantly upgraded its growth outlook, and pulled forward interest rate hike expectations to 2022 from 2023. Rising economic optimism in Canada has validated the loonie’s outperformance against G10 rivals this year.  


Subdued stocks and a firmer euro weighed broadly on the U.K. pound which translated into declines against its U.S. counterpart. Disappointing data also pressured the pound as a gauge of British factory growth unexpectedly contracted in April. Today’s data was consistent with a still vulnerable economy ahead of retail sales on Friday which are forecast to increase for a second straight month, albeit at a slower pace of 1.5% in March, compared a 2.1% jump in February.  

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