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Currency Market Analysis

Jun 24, 2021 | Currency Market Analysis

Global Themes

The greenback was mostly steady as softness versus the euro was counterbalanced by gains against the UK pound. The Canadian dollar edged higher ahead of fresh news on the state of the recovery in the world’s biggest economy. The euro firmed after German business optimism rose more than expected to the highest level since 2018. A dovish hold today from the Bank of England weighed on sterling. As expected, the UK central bank left interest rates at historic lows of 0.10% but was mum about when rates might rise. The dollar steadied after it clawed out a gain Wednesday thanks to bullish data and some Fed officials hinting that lending rates could rise as soon as next year. Look for America’s rate debate to be influenced by numbers today on the job market and durable goods, and Friday on consumer spending and inflation.


Sterling fell after the Bank of England stopped short of delivering hawkish guidance on the outlook for monetary policy. As expected, the BOE kept borrowing rates and its asset purchases steady at record lows of 0.10% and GBP 875 billion, respectively. Notably, the bank’s outgoing chief economist Andy Haldane voted to reduce the size of its asset purchases but was outvoted by an 8-1 margin. The Fed perceived as more hawkish than both the BOE and ECB could translate into meaningful support for the dollar.  


The euro kept above two-month lows after bullish news on German confidence was consistent with the bloc’s biggest economy bouncing back. Germany’s influential Ifo index of business morale jumped more than expected to 101.8 in June, the highest since November 2018, from 99.2 in May. Forecasts called for a print of 100.6. Europe’s shared currency remains in a post-Fed decision hole of nearly two cents, with vulnerabilities seen increasing the longer it sticks below a key psychological threshold.


The dollar softened after a trio of U.S. report offered mixed messages on the state of the recovery. As expected, the U.S. economy grew at a robust annualized rate of 6.4% during the first quarter. But weekly jobless claims disappointed by unexpectedly keeping above 400,000 (411K vs forecasts of 380K), while the 2.3% jump in durable goods, while solid, was below forecasts of 2.8%. On balance, the data keeps the economy on pace for faster second quarter growth which should be supportive of the buck.


The loonie was generally steady as the greenback softened but so did the price of oil. The loonie’s recovery from eight-week lows wavered after Canadian consumer spending on Wednesday contracted at the fastest pace in a year in April. A nearly 1% decline pushed the price of oil below $73.

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