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Currency Market Analysis

Jul 01, 2021 | Currency Market Analysis

Global Themes

Dollar strength remained the story as the third quarter got underway. The buck steadied near 10-day highs versus Canada, while it hovered around April peaks against the euro and sterling. Australia’s dollar sank to fresh 2021 lows. The greenback has been on a tear since the Fed last month penciled in an earlier liftoff in interest rates. Whether the buck’s revival is a fairly short story could be gleaned by America’s influential June jobs report on Friday. Evidence of an accelerating U.S. economy were partly behind the dollar index’s 2.7% surge last month, its largest for a month since November 2016. Ahead of nonfarm payrolls Friday, the economy will let loose key numbers today on weekly jobless claims and factory growth. Strong prints that affirm the Fed’s hawkish guidance would bode well for sustainable dollar gains.

CAD

The loonie eased off 10-day lows in holiday-subdued trade, thanks to oil climbing to fresh October 2018 highs above $75. Canada’s dollar, though, was generally on the defensive after it weakened by 2.7% versus the greenback in June, its worst monthly performance since March 2020. The loonie fell prey to the Fed’s hawkish policy guidance with some central bank officials not ruling out a rate hike as soon as 2022. Local markets are closed to observe Canada Day.

EUR

The euro stabilized after it kicked off the third quarter with a fall to its lowest level in nearly three months. A day after euro zone inflation hit the ECB’s bullseye of just below 2%, unemployment moved below 8% in May to the lowest level in nearly a year. Euro sentiment remains fragile at best and could be vulnerable to new lows if American data should affirm the Fed’s hawkish policy stance.

GBP

Sterling tumbled to 2 ½ month lows versus its U.S. rival, following another round of dovish remarks from the head of the Bank of England. Gov. Andrew Bailey today said the UK central bank would be careful not to jump the gun in rolling back stimulus, not wanting to harm a fragile recovery. Mr. Bailey reaffirmed that higher inflation should fade on its own and not require central bank intervention to choke off price increases. Underscoring pandemic-related economic fragility, a gauge of UK manufacturing growth was downwardly revised.

USD

The U.S. dollar kept in reach of its highest level in nearly three months following evidence of the job market making substantial progress. Weekly jobless claims improved to fresh pandemic lows of 364,000 which was better than forecasts of 390,000 from 415,000. Next up: the ISM manufacturing index at 10 a.m. ET which is forecast to edge down, likely the result of continued supply bottlenecks. After that, the spotlight shifts back to the job market with nonfarm payrolls Friday. Forecasts call for June hiring of around 700,000, lower unemployment of 5.7%, with wage growth seen nearly doubling to 3.7% from 2% in May. Prints in line or better than expected would likely send more dollar bears running for the exits.


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