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Currency Market Analysis

Apr 28, 2021 | Currency Market Analysis

Global Themes

Caution ahead of a policy announcement today from the Federal Reserve put a floor under the greenback. The mostly firmer dollar rose above two-month lows against the euro and notched two-week highs against the yen. The mixed buck strengthened versus the U.K. pound while firmer oil above $63 buoyed the Canadian dollar. The dollar has labored this month, weakened by a steady drumbeat of dovish messaging from America’s central bank that downplayed prospects for rolling back stimulus anytime soon. The Fed issues an update today at 2 p.m. ET when it is all but certain to keep interest rates and its policy settings unchanged. The dollar rose as markets erred on the chance that the Fed’s guidance could tilt a bit hawkish amid a backdrop of an economy gaining significant strength.

EUR

The euro slipped below Monday’s two-month high against the dollar on caution ahead of today’s Fed decision. No major shift from the Fed with respect to policy and its messaging could serve as a green light to push the euro higher. However, any hawkish hints from the Fed that the economy is starting to show the substantial strength that it wants to see before tapering its monthly bond purchases could turn the tide against EUR/USD.

GBP

Sterling favored the lower end of a narrow range against the greenback, as the U.S. unit found support ahead of today’s Fed decision. The pound also has fallen prey to a lack of meaningful UK data this week that’s limited fuel to sustain positive momentum. The pound could strengthen anew if today’s Fed announcement comes and goes and leaves unchanged the narrative that higher U.S. inflation is likely to prove temporary and not require policy intervention such as higher interest rates.

CAD

The loonie held firm and near its highest level in more than five weeks against the greenback after data showed the Canadian consumer made a strong comeback. Retail sales topped forecasts with a 4.8% surge in February, exceeding expectations of a 4.0% increase. The February spending spree put a halt to back to back months of declines in December and January, and potentially sets the stage for more good news Friday when Canada issues February growth, seen expanding by 0.5% after January’s 0.7% jump.


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