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Currency Market Analysis

May 13, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied near highs for the week ahead of fresh news on the world’s biggest economy. The euro and yen stabilized after hitting one-week and one-month lows against the greenback. Sterling kept below 2 ½ month highs while weaker oil pushed the loonie from six-year peaks. The dollar caught a data-inspired boost this week after inflation soared past expectations which raised questions about whether higher prices would only prove temporary. The buck has more economic hurdles to clear in weekly jobless claims and wholesale inflation today, followed by retail sales Friday. Data outcomes consistent with the economy roaring back faster than expected could add fuel to the dollar’s rebound. Still, meaningful strength could elude the dollar on the view that any change in Fed posture won’t happen any time soon.


A volatile Canadian dollar was little changed for the week as it surrendered a portion of a rally that had propelled it to six-year highs against the dollar. The sharp surge in U.S. consumer prices this week to the highest level in more than a decade weakened the prevailing view that Canada would raise interest rates ahead of the Fed.


Stronger than expected U.S. data today kept the dollar north of 2 ½ month lows. Weekly jobless claims improved to a pandemic low of 473,000 in the latest week, better than forecasts of 490,000. The downward trend in jobless claims suggests last week’s disappointing payrolls report may have understated the strength of the labor market recovery. Wholesale inflation rose at an annual rate of 6.2% in April, fastest than forecasts of 5.9%. The hotter than expected PPI added to growing evidence of rising inflation which could keep upward pressure on yields and help the dollar.


The euro kept to a lower orbit against the data-boosted greenback. The single currency has lost a cent in value since its surge to 2 ½ month peaks Monday. The hottest U.S. consumer inflation in more than a decade reawakened both Treasury yields and the dollar with the 10-year jumping to around 1.70%, the highest level in more than a month.


Sterling wilted from 2 ½ month highs against the dollar, hurt by the one-two punch of a stronger dollar and weaker risk sentiment. Scope for pound weakness may prove mild, however, after British growth data this week suggested the UK recovery was off to a better than expected start. The pound has slipped more than a cent from 2 ½ months reached Monday.  

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