Currency Market Analysis

May 19, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar stabilized above its lows as falling global stocks boosted safe havens. Across the board gains lifted the dollar off multimonth lows against the euro and sterling, and its weakest level in six years against the Canadian dollar. A focus on the Fed has global markets nervous. America’s central bank today at 2 p.m. ET will issue the minutes of its April meeting. Market sentiment has hinged on every word from the central bank amid compelling evidence of rising inflation. The Fed has maintained that inflation will rise over the short-term then eventually crest and recede. The big worry is that the Fed’s new outcome based policy framework could result in the central bank waiting too long to rollback stimulus, a scenario that could push inflation too high and lead to aggressive policy tightening to fight it.

CAD

The loonie edged off six-year highs as the greenback recovered as weaker global stocks and oil spurred a flight to safety. The price of oil slipped 2% to $64 while Wall Street futures in the red had stocks at risk of a building on two days of losses. The loonie cut its losses after hotter than expected domestic inflation was consistent with the nation’s central bank remaining on a policy tapering path. Consumer prices rose at an annual rate of 3.4% in April which followed a 2.2% jump in March. Much of the rise was due to base effects as last year’s weak readings in the spring no longer counted. A gauge of core inflation increased 1.7% from 1.5%.

EUR

The euro lost thrust after an overnight rally drove it to more than four-month highs against the greenback. The euro has been among the chief beneficiaries of the dollar’s fresh leg lower this week. Global stock weakness, though, has slowed the single currency’s advance as risk-averse players seek higher ground in the dollar. The week’s most important look at the European economy looms Friday with preliminary factory surveys for May.

GBP

Sterling surrendered ground after a rally this week put it in close proximity of 2021 highs versus the greenback. Weaker global stocks overshadowed more evidence of a strengthening UK economy. British consumer prices jumped at an annual rate of 1.5%, more than double the 0.7% gain in March, and the highest level in more than a year. The data added to growing evidence of a rising cost of living around the world as economies recover from the pandemic.


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