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Currency Market Analysis

Jun 11, 2021 | Currency Market Analysis

Global Themes

Treasury yields fell to fresh lows Friday but not the greenback which motored to one-week highs. The dollar found broad support and climbed to one-week peaks against the euro. The U.S. unit also appreciated against rivals from Britain, Canada and Mexico. The yield on America’s benchmark 10-year Treasury note skid to 1.43%, the lowest level since early March, a sign of markets’ ironclad conviction in the Fed’s view that higher U.S. inflation should fade in the months ahead. Yields fell despite news this week that U.S. consumer prices soared at an annual rate of 5% in May, the highest level in more than a decade. While red hot, the sense is that inflation is at or near a peak and could start to fade by July. The euro slipped after dovish policy guidance from the ECB torpedoed the view that Europe could taper monetary stimulus before the Fed.


A stronger greenback and slightly weaker oil weighed on the Canadian dollar. Oil pared gains after flirting with $71 early Friday. Elevated oil prices suggest limited scope for a meaningful bounce higher for USD/CAD, a currency pair that held a modest 0.4% gain in June but nursed a year-to-date decline of nearly 5%. Should the Fed next week strike a less dovish tone it could leave the Canadian dollar a bit vulnerable.  


The euro sank to one-week lows a day after the ECB upgraded its outlook for the 19-nation economy but vowed to press full speed ahead with economy-boosting stimulus measures for the foreseeable future. The ECB signaling that it has no imminent plans to reduce stimulus torpedoed the view of Europe tapering its bond purchases ahead of the Fed. America’s central bank next week is likely to discuss plans for cutting back on stimulus. The Fed will issue a policy decision and new economic projections on Jun 16.


Sterling favored one-month lows against the greenback as uncertainty about Britain’s plans to fully reopen its economy overshadowed bullish growth data. Britain’s economy accelerated at a 2.3% monthly pace in April which slightly exceeded forecasts. A rise in the Delta variant of Covid-19 has cast doubt on Britain fully reopening its economy on Jun 21. A delayed reopening could serve as a setback to Britain’s road to recovery from its worst downturn in centuries. 

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