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Currency Market Analysis

May 20, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar’s Wednesday rally faded amid a partial recovery in risk appetite. The dollar slipped against the euro, sterling and Canadian dollar, though it kept its chin above recent lows. The dollar rose above three-month lows Wednesday after less dovish Fed minutes showed some officials in favor of the central bank considering plans to taper back on stimulus. The Fed merely thinking about when to consider plans was a subtle but notable signal shift from the central bank. The Fed minutes put a tentative floor under the dollar but were no game changer. The dollar’s next directional cue could come from a report today on U.S. weekly jobless claims which are forecast to extend an improving trend.


Sterling edged up against the dollar, boosted by a partial recovery in risk appetite and fresh signs of a strengthening UK economy. Wall Street futures were in the red early Thursday but some European equities had strengthened, supporting risk sentiment. A gauge of UK factory activity showed surprise growth in May and the strongest since December 2017. The data bolstered the Bank of England’s view that the UK economy could grow around 7.25% this year, a level last reached in the 1940s.


The dollar stuck near session lows after more evidence of a choppy U.S. recovery. Weekly jobless claims improved to a fresh pandemic low of 444,000 in the latest period, a still elevated level that’s about double where they were before the pandemic struck. The Philly Fed index showed a bigger than expected moderation in business conditions along the Mid-Atlantic region, printing at 31.5 in May versus forecasts of 43 and April’s 50.2.


The loonie firmed as a weaker greenback overshadowed lower oil markets. The price of crude hovered around $62, not far from three-week lows touched the previous day. Commodity currencies took a cue from the bright side of mixed Australian jobs data. Australia’s jobless rate improved to a one-year low of 5.5% in April, though hiring unexpectedly contracted by more than 30,000 jobs. Meanwhile, new housing prices in Canada rose by 1.9% in April after a 1.1% increase in March.


The euro rebounded after a Fed-induced fall the previous day from four-month highs. Less dovish Fed minutes, released Wednesday, showed officials pondering when to mull plans to rollback its bond buying stimulus. The minutes dampened the view that the ECB could taper stimulus before the Fed. Friday looms importantly for the euro when Europe publishes preliminary factory surveys, a key barometer of the bloc’s pace of recovery.

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