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Currency Market Analysis

Jun 14, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar was little changed near recent highs on caution ahead of a midweek Fed rate meeting. The greenback was broadly steady versus the euro, sterling and Canadian dollar while it strengthened versus emerging markets. The buck last week turned in its best weekly performance in more than a month. Caution ahead of a Fed decision Wednesday has eased pressure on the dollar whose 0.4% gain last week was its biggest in six weeks. The Fed is not expected to change course on its low rate policies anytime soon. But the Fed this week will issue new forecasts for the economy and interest rates. A brighter outlook for growth would keep the Fed on track to signal dollar-positive policy changes as soon as next quarter. U.S. retail sales Tuesday are forecast to fall by 0.7% in May.

CAD

Canada’s loonie hovered near one-month lows against the firmer greenback. Investors are using the run-up to the Fed’s midweek policy decision to flatten out negative bets on the U.S. currency. The Fed is not expected to change course on policy this week but it could sound a hawkish note with respect to the economic outlook. Markets will pay heightened attention to see if the Fed still expects higher inflation to be temporary.  

EUR

The euro steadied near its lowest level in more than a week against the greenback on caution ahead of a midweek Fed rate meeting. The euro edged above its lows after euro zone industrial production surprised to the upside with a gain of 0.8% in April which was two times stronger than forecasts of a 0.4% rise. Europe’s single currency underperformed last week after the ECB upgraded its economic outlook but signaled a steady outlook for low rate policies.

GBP

The UK pound stabilized after sinking overnight to one-month lows. Sterling largely took in stride expectations that the UK government would likely push back by several weeks the timetable for it to fully reopen its economy from the pandemic. The pound instead is finding tentative support from expectations that UK numbers this week on unemployment (Tuesday), inflation (Wednesday) and retail sales (Friday) would be consistent with the economy further down the road to recovery. 


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