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Currency Market Analysis

May 05, 2021 | Currency Market Analysis

Global Themes

US Treasury Secretary Janet Yellen was quoted yesterday in an interview saying interest rates “may have to rise somewhat” to ensure the economy doesn’t overheat. Stocks fell, bond yields rose, and the dollar spiked immediately on the headline. Yellen tried to walk back her comment later in the day, saying she ‘doesn’t anticipate that inflation will be a problem for the US economy’ and that she supports the Fed’s full independence on monetary policy. The US dollar will be offered some guidance from three important data releases today. The ADP Employment Report for April indicated the US labor market created 742,000 private sector jobs, less than the 800,000 expected. At 9:45 ET and 10:00 ET the IHS/Markit and ISM Service Sector Purchasing Managers Index’s will provide fresh evidence of the strength of the reopening of the US economy in the important Service Sector.

GBP

The British Pound has bounced off the reaction lows from Janet Yellen’s comments, nearing 3-month trend-line resistance at 1.3950. IHS/Markit Service Sector and Composite numbers for April are released tomorrow for the UK and are expected to show the British economy growing at a healthy clip. The British economy is expected to be free of all restrictions in 7-weeks.  The Bank of England will announce its decision on monetary policy tomorrow as well.

CAD

Canadian dollar strength is being aided this morning by strong oil prices and broad commodities. The CRB Commodity Price Index is up 0.8% today reaching its highest level since May 2018. Markets will be watchful for any significant comments from Bank of Canada governor Macklem as he appears before a Senate committee tonight at 6:30 ET. And this Friday, Canada reports its April jobs figures that are expected to show significant declines in job creation due to the 3rd Covid wave that hit Canada last month.

EUR

The Euro fell against the US dollar yesterday and remains this morning near key technical support of 1.2000. Earlier this morning the Eurozone HIS/Markit Service Sector and Composite PMI’s showed improvement in the common currency economy. The Service Sector rose to 50.5 in April vs 49.6 in March and the Composite number rose to 53.8 vs 53.2, its second-best reading in the last 2.5-years.


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