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Currency Market Analysis

May 27, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar shifted into neutral after it notched one-week highs overnight. The UK pound was the star of an otherwise lackluster overnight session, boosted by hawkish remarks from a British central banker. The euro steadied while commodity currencies like the Canadian dollar outperformed. A midweek lull in the data calendar allowed the dollar to catch a breather after sinking to January lows against a broad basket of rivals. America’s economy will command center stage today and tomorrow and help guide expectations for Fed policy. Stronger growth and fewer weekly jobless claims are in the cards for today, while slower consumer spending and higher inflation is expected Friday. Jobs and inflation numbers matter most for the dollar and constructive news could help stem its slide.


Hawkish remarks from a British central bank official offered the pound a helping hand from 10-day lows. The pound clawed back about a cent after hitting a May 17 low against the dollar after Gertjan Vlieghe, a member of the Bank of England, suggested area interest rates could rise from record lows of 0.10% sometime next year as the economy strengthens and inflation rises.


The euro kept to a tight range and not far from January highs against the greenback ahead of important data on the U.S. economy over the balance of the week. The euro has strengthened by 4% since it plumbed lows for the year in late March, boosted by Europe picking up the pace of vaccinations that helped to put the bloc on a stronger road to recovery from the pandemic.


The dollar held its chin in positive territory for the year after a constructive batch of U.S. data strengthened the case for the Fed to taper stimulus. Weekly jobless claims extended a downward trend as they fell to fresh pandemic lows of 406,000. Durables goods declined in April but business spending surprised to the upside, up 2.3%. The U.S. economy grew 6.4% in the first quarter, slightly below forecast but still one of the fastest quarterly rates since 2003, while a measure of core inflation accelerated by a bigger than expected 2.5%.


The Canadian dollar rose above earlier one-week lows thanks to elevated commodity prices. Oil slipped below $66 but other commodities, like copper, advanced. The loonie continues to hold the upper hand against the greenback on expectations that Canada would raise interest rates before its U.S. counterpart. Meanwhile, Canada’s brightening economic outlook is expected to gain an added tailwind from a strengthening U.S. economy.

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