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Currency Market Analysis

Jul 02, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar jumped to three-month highs ahead of data that’s expected to show acceleration in the world’s biggest economy. The dollar climbed to 1 ½ week highs versus the Canadian dollar, and was at or near three-month peaks against the euro and sterling. The yen sank to new March 2020 lows. All eyes are on America’s job market as the U.S. government releases its June jobs report. Hiring likely hit the accelerator in June with job growth of around 700,000, compared to lackluster gains in April and May. Strong hiring would be a vote of confidence in the recovery and validate the Fed’s hawkish policy bias, a scenario that could see the dollar squeeze more juice out of its rally. Another subpar number, on the other hand, would tend to pour cold water over the dollar’s outperformance.

CAD

Oil off its peak and the U.S. dollar near its highs knocked the loonie to 11-day lows. Canada’s dollar has fallen 4 cents, or about 3.5%, from 6-year highs scaled last month. The U.S. unit received a shot in the arm after the Fed recently put markets on notice that it could rollback stimulus earlier than previously expected. 

GBP

The UK pound slipped to 11-week lows against its U.S. rival ahead of data that could confirm the Fed’s more hawkish outlook. Pound sentiment also has suffered from the BOE’s still dovish bias, and from the rise in the delta strain of the virus that’s dampened optimism about a stronger global recovery over the second half of the year.

EUR

The euro grinded to new three-month lows as the dollar remained in vogue ahead of key American employment data. The U.S. jobs report will help shape sentiment for EURUSD over the coming weeks. A constructive report would tend to unlock the door to further euro weakness. The perception that Europe would trail the U.S. in rolling back stimulus has reopened wounds for the single currency, leaving it vulnerable to revisiting lows for the year that reside a little more than a cent away.

USD

The U.S. dollar wavered after hiring proved far stronger than expected. America added a massive 850,000 jobs in June, well north of expectations of a gain of 700,000. Unemployment rose a tick to 5.9%. While hiring outpaced expectations, wage inflation underwhelmed which bolstered conviction in the narrative that higher inflation would likely prove transitory. Somewhat tepid wage growth threatens to keep a lid on Treasury yields, a key driver of the dollar. The buck may fall prey to the ‘buy the rumor of good news, sell the fact,’ particularly ahead of the holiday weekend.


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