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Currency Market Analysis

May 21, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar slipped to fresh lows overnight and was on track to end the week behind its rivals. The broadly weighted dollar index fell to its lowest level in more than four months as the dust settled from less dovish Fed minutes earlier in the week. The dollar hovered near four-month lows against the euro and favored recent three-month and six-year lows against the UK pound and Canadian dollar respectively. The buck caught a momentary midweek boost after the intimate details of the Fed’s April meeting revealed that some officials thought the central bank could soon discuss plans to slow support to an economy making further progress. Still, the big picture remains largely unchanged with the Fed seemingly on track to taper stimulus by next year and not raise interest rates until 2023 at the earliest.


The euro softened despite signs of the European economy starting to outperform. The euro edged off four-month highs Friday, likely the result of profit-taking after a week of outperformance, despite news that euro zone factory growth slightly topped forecasts (62.8 vs. 62.5) in May. A separate survey showed that German manufacturing in May decelerated more than expected. In the week ahead, Tuesday lurks as a big day for the euro when Germany issues revised first quarter growth and its Ifo index of business optimism.


A stronger Canadian dollar Friday held in arm’s reach of 6-year highs against the greenback. The loonie was on pace for its eighth rise in as many weeks against the dollar after domestic consumer spending topped forecasts and cemented expectations of robust first quarter growth in line with the Bank of Canada’s forecast of 7%. Retail sales jumped 3.6% in March, above forecasts of 2.3%, and the second straight monthly increase. Another survey this week showed the fastest Canadian inflation (3.4%) in a decade.


Sterling wavered after it all but matched highs for the year against the greenback. The pound still notched its highest level in nearly three months against the dollar, following fresh signs of a rebounding UK economy. The pound found support from robust news on the UK consumer as retail sales surged some 9.2% in April which was more than double forecasts of a 4.5% increase. Area PMI surveys showed faster manufacturing and services growth, news that kept the pound’s upward bias intact.

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