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Currency Market Analysis

Jun 04, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar held firm and near multiweek highs ahead of the release of America’s May jobs report. The buck rose to one- and two-week highs against the loonie and sterling, and notched its strongest in three weeks versus the euro. The dollar has benefited from a short covering bounce thanks to impressive U.S. numbers this week on manufacturing and services growth, the latter scaling record highs, and better than expected labor market indicators. Whether the dollar has turned a corner, though, may hinge on today’s nonfarm payrolls report. Hiring likely accelerated by around 650,000 jobs in May after April’s lackluster gain of 266,000. It would likely take a strong number north of forecasts to lower the bar for the Fed to dial back on stimulus. The sooner the Fed is perceived as tapering stimulus, the better the dollar typically performs.


The U.S. dollar slipped from three-week highs after hiring accelerated less than expected last month. America netted 559,000 jobs in May, below forecasts of 650,000. While relatively tepid, it was strong enough to lower unemployment to 5.8% from 6.1%. Given whispers of an upside surprise for nonfarm payrolls, the weaker print sprinkled cold water over U.S. recovery optimism. The jobs report also keeps the bar elevated for the Fed to change course on policy. The specter of low rates for longer remains a significant vulnerability for the dollar.


The UK pound stabilized after it fell to more than two-week lows against the dollar ahead of important data on America’s job market. The pound’s decline left it at risk of snapping a four-week winning streak against its U.S. counterpart. The spotlight next week will shine brightly on the UK economy with a trifecta of numbers Friday (June 11) on monthly growth, factory output and trade.


The loonie was little changed as markets absorbed weaker than expected jobs reports from both sides of the border. Canada shed 68,000 jobs in May which far eclipsed forecasts of a loss of 20,000. Weaker hiring pushed unemployment up a tick to 8.2% which was in line with expectations. The data suggested that the country’s third wave of the coronavirus was taking a bigger than expected toll on growth. The disappointing jobs report introduced the risk of the Bank of Canada sounding less hawkish when it renders a decision on June 9.


The euro fell to three-week lows against the data-buoyed greenback. The single currency’s retreat moved it 1 ½ cents below last week’s January high. The 19-nation currency would be at risk of further declines should America’s May employment report today revive the theme of U.S. economic outperformance and lower the bar for the Fed to taper stimulus.

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