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Currency Market Analysis

May 11, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar maintained a negative bias but hovered just above multimonth lows as inflation jitters dampened risk sentiment. The buck moved a speck above multimonth lows against the euro and sterling while it was little changed versus the Canadian dollar. The greenback’s second quarter decline gathered pace after last week’s tepid jobs report reinforced the Fed’s low rate outlook. But inflation worries are on the rise, pressuring broader markets and helping to slow the dollar’s slide. Commodity prices have surged while Chinese wholesale inflation shot to more than three-year highs in April. With inflation concerns starting to stir, attention will be on remarks from Fed officials today and U.S. consumer prices tomorrow. To support the dollar, the Fed would have to acknowledge inflation concerns and signal it could move sooner to reduce stimulus, scenarios that may still be premature. 


The euro held aloft near the previous day’s more than two-month high, boosted by a welcomed spike in German investor confidence. Germany’s influential ZEW survey jumped to 84.4 in May, one of the highest levels in years, compared to forecasts of 72. A sustained rise in German optimism would be consistent with a brightening outlook for growth, a potential catalyst that could add fuel to the euro’s 4% rally from five-month lows hit in March. 


Canada’s dollar inched down from multiyear highs as weaker oil tempered bullish sentiment toward the Canadian unit. A more than 1% decline pushed oil further below $65. Still, generally buoyant commodities continued to underpin commodity-backed currencies like the loonie. Moreover, elevated commodity prices, like copper and iron ore, coupled with a weaker greenback, kept the loonie well supported and helped it weather Canada’s big job losses last month and higher unemployment above 8%.


A firm UK pound kept close to late February highs, a day after it surged 1 ½ cents, or 1%, for one of its best days of the year. Sterling has found a trio of tailwinds from the deteriorating dollar, relief that any Scottish independence referendum appears less likely anytime soon, and rising optimism about Britain’s economic outlook. The pound, though, faces key event risk Wednesday when Britain releases first quarter growth that’s forecast to show the economy started the year in reverse after 2020 proved its weakest year in centuries.

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