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Currency Market Analysis

Jun 21, 2021 | Currency Market Analysis

Global Themes

The higher flying U.S. dollar ceded some ground after it climbed to fresh highs. Rivals from Europe and Canada bounced above April lows against their U.S. counterpart whose rally petered out as Treasury yields sank. The 10-year Treasury yield overnight slipped below 1.40% to its lowest level since late February. Market volatility has been reawakened after the Fed last week projected an earlier liftoff in interest rates from crisis lows near zero. The dollar has been the chief beneficiary of the Fed’s hawkish pivot which bodes well for underlying sentiment. The dollar last week surged nearly 2% for its best week since March 2020. How sustainable the dollar’s rally is may hinge on remarks from Fed officials this week, and U.S. data on manufacturing, the consumer and inflation.

EUR

The euro stabilized after sinking overnight to its lowest level in more than two months. Europe’s single currency has shed nearly 3 cents since the Fed’s game changing policy decision last week which suggested the Fed could normalize monetary policy ahead of the ECB. The euro this week will look for direction from preliminary factory growth surveys Wednesday, and Thursday when Germany issues its influential Ifo survey of business confidence which is forecast to accelerate from 2-year highs. 

CAD

The Canadian dollar bounced off 8-week lows as the big dollar took a breather after its Fed-induced tear to multimonth peaks versus a basket of currencies. Elevated oil markets buoyed commodity correlated currencies with crude above $71. Canada’s top event risk this week is retail sales Wednesday that are forecast to tumble 5% in April as renewed lockdowns likely restrained economic activity. The data will shed light on how the economy started the spring quarter. 

GBP

The UK pound steadied after it extended its Fed-inspired slide to two-month lows against the greenback. Central banks loom large for GBP/USD this week with Fed official speaking every day, while the Bank of England releases a policy statement Thursday. A UK central bank that should emphasize a brightening outlook despite the postponement of a full reopening in Britain could help to put a floor under sterling.


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