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Currency Market Analysis

May 17, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar found tentative support to begin the new week as global stocks turned cautious. The dollar was mixed as it declined against the yen but was steady to firmer against the euro, sterling and Canadian dollar. Investor caution increased following rising Covid-19 cases in Asia while data from China, the world’s second biggest economy, underwhelmed. The dollar eked out a gain last week after data showing the fastest inflation in more than a decade momentarily pushed Treasury yields higher. But the dollar has struggled to sustain rallies as the Fed has repeatedly vowed not to lift borrowing rates as it expects higher inflation to be fairly short-lived. The Fed will be in focus this week when officials speak every day this week while the minutes of its late April meeting will be published Wednesday.


The euro wavered within recent ranges against the greenback, keeping it within arm’s reach of recent 2 ½ month peaks. A big week looms for the 19-country economy with data Tuesday and Wednesday on first quarter growth and inflation, followed by preliminary purchasing managers’ indexes for May on Friday. Evidence of a broadening European recovery could prove euro-positive on the notion that the ECB might taper monetary stimulus before the Fed. 


The loonie’s seven-week winning streak against the greenback cooled Monday as lower oil below $65 checked its advance. Meanwhile, evidence that Canada’s economic recovery may be losing momentum added to the loonie’s slightly softer bias. Local housing starts slowed more than expected to an annual rate of 268,600 units in April, the same month the economy bled more than 200,000 jobs. Faster inflation of around 3% is expected Wednesday followed by slightly slower retail sales Friday.


Sterling was little changed after it advanced for a second week in a row against the greenback. The pound showed some fatigue as weaker risk sentiment, as global stocks sagged, dragged on the UK unit. UK fundamentals will be in the spotlight this week with numbers on unemployment Tuesday, inflation Wednesday and retail sales Friday. Prospects for the pound’s winning streak would tend to brighten amid a backdrop of UK businesses continuing to reopen as well as mounting evidence of a strengthening recovery. 

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