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Currency Market Analysis

Jun 30, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar hovered near recent highs on cautious optimism that Friday employment data may be consistent with a strengthening job market. The mostly stronger buck rose against the euro and sterling, but higher oil buoyed the Canadian dollar. The dollar got back in the win column this month after the Fed acknowledged higher inflation and pulled forward the timetable for raising interest rates from near zero. Friday’s jobs report should serve as a good gauge of dollar sentiment. Stronger hiring would corroborate with the Fed’s hawkish outlook and likely keep the buck biased higher. Ahead of the data, payrolls company ADP reported today that private employers added 692,000 jobs in June which topped forecasts of 600,000 but marked a slowdown from May’s gain of nearly 1 million.


The UK pound’s more than 2% decline in June had it on course for its worst month of the year against the greenback and its weakest performance since September 2020. The dollar stepped on the accelerator on the prevailing view that the Fed would dial back on stimulus before the Bank of England. Reinforcing the BOE’s more dovish stance, UK first quarter growth proved to be weaker than previously expected as it was downwardly revised by a tick to a 1.6% decline.


The loonie trimmed its monthly declines after area growth wasn’t as bad as forecast. Canada’s economy contracted by 0.3% in April as renewed lockdowns took a toll on the recovery. But that wasn’t as bad as forecasts of a 0.8% decline, while it also helped at the margin that March growth got upwardly revised to 1.3%. Canada forecast another mild contract of 0.3% for May. Despite the recent setback to the recovery, the growth outlook for the latter half of the year remains relatively bright. USDCAD was on track for a monthly gain of around 2.5%.


While the euro was on track for a second quarter gain against the dollar, but that masked underlying weakness as the single currency was poised for a decline of around 2.5%. Year to date, EURUSD was in a hole of nearly 3%. The euro struggled thanks to the divergent outlooks for U.S. and European monetary policy. The Fed turned hawkish in June while the ECB maintained its dovish forward guidance that put it on a path to taper stimulus after Washington.

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