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Currency Market Analysis

Jul 08, 2021 | Currency Market Analysis

Global Themes

Falling Treasury yields caught up with the greenback and put a brake on its summer surge. The dollar retreated from three-month highs against the euro and sank about 1% versus safer peers from Japan and Switzerland. A confluence of factors have dampened optimism about the outlook for global growth which weighed on commodity currencies, like the Canadian dollar, and emerging markets. Market sentiment took a turn for the worse Thursday as global stocks tumbled along with government bond yields with the 10-year Treasury as low as 1.25%. Tepid factory surveys this week from around the world hinted at a moderating pace of global growth. Inflation fears have also receded. Investor angst also stems from rising strains of Covid 19 that led Japan, the host of the summer games, to impose a state of emergency. Thin summer trade, meanwhile, is likely exaggerating the renewed volatility.

CAD

The loonie crashed to 11-week lows versus its U.S. peer as broad based risk aversion exerted more downward pressure on oil markets. Oil below $72 flirted with three-week lows, a marked shift from earlier this week when prices had topped $76, the highest in 6 years. The loonie’s decline also stems from markets’ reassessment for global growth following evidence that the recovery may be at or near a peak.  

GBP

The UK pound wilted toward three-month lows against its U.S. rival, weighed down by widespread risk aversion. Moreover, a more cautious outlook for global growth only reinforces the Bank of England’s less than hawkish policy guidance that stands in contrast to the Fed which appears on track to taper stimulus sooner rather than later.

USD

The dollar stuck near session lows after fresh news on the job market slightly disappointed. Weekly jobless claims rose unexpectedly to 373,000, compared to forecasts of 350,000 from the previous week’s revised 371,000. While higher than expected, the labor market recovery remains intact as broader gauge of joblessness improved. The dollar’s rally has encountered speed bumps as falling equities could prompt some to liquidated some of their more profitable bets.

EUR

The euro rebounded from three-month lows as tumbling global stocks and sinking Treasury yields stalled the dollar’s rally. The euro was little swayed by the outcome of the ECB’s strategic policy review that resulted in the central bank adopting a slightly higher inflation goal of 2% which moved it in line with the Fed. The ECB previously aimed for inflation a little below 2%. The euro’s still fragile bias could see rallies give way to renewed selling. EURUSD’s fall this week to April lows has it in the crosshairs of 2021 lows.


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