Currency Market Analysis

Jun 15, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rose as Fed officials gathered for a two-day rate meeting. The dollar gained and against the euro and yen, and jumped to one-month peaks versus peers from Britain and Canada. The Fed starts a two-day policy meeting today that concludes Wednesday at 2 p.m. ET when it will release a statement and new forecasts for the economy and interest rates. The buck could struggle if the Fed sticks to its low rates for longer outlook. However, any material change in the outlook for interest rates that pencils in a sooner rate increase could support the dollar. Also of paramount importance will be whether the Fed still believes that higher inflation should fade by year-end. If that’s not enough, currencies today could also take direction from influential U.S. numbers on retail sales and wholesale inflation.

USD

The U.S. dollar kept firm as another hot reading on inflation overshadowed a chilly consumer. The producer price index jumped at a record annual rate of 6.6% in May which exceeded forecasts of 6.3% from 6.2% in April. Retail sales disappointed by sinking 1.3% in May, though it helped that spending in April got upwardly revised from zero to up nearly 1%. The bigger than expected rise in inflation will at least test the Fed’s view that higher price growth should fade in the months ahead.

GBP

Some of the world’s best performing currencies like sterling and the loonie lost ground to the dollar ahead of the Fed’s important policy update tomorrow. Fed caution spoiled the party for sterling which failed to capitalize much from encouraging UK jobs data. Britain’s unemployment ticked lower as expected to 4.7% in the three months to April while the 5.6% surge in wage growth was the fastest since 2007, clear evidence of the economy roaring back from last year’s historic collapse.  

EUR

The euro kept toward early June lows against the greenback ahead of a Fed policy decision Wednesday. Euro bulls are treading carefully in the event that the Fed forecasts faster growth and higher inflation and an earlier than expected increase in borrowing rates. A Fed perceived on a faster path to tapering monetary stimulus than the ECB could prove broadly beneficial for the greenback.

CAD

Canada’s dollar fell to one-month lows as greenback selling abated on the eve of a Fed meeting complete with new forecasts for the economy and interest rates. The loonie ranks at or near the top of best performing major currencies this year, leaving it vulnerable in the event of a material change in the outlook for U.S. interest rates. While softer, the loonie had its fall slowed as oil markets pushed to new pandemic highs above $71.  


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