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Currency Market Analysis

Jul 09, 2021 | Currency Market Analysis

Global Themes

This week’s market meltdown abated with the U.S. dollar holding below multimonth highs but still on track for a positive week. Sterling led European currencies higher with the yen lower a day after a Wall Street slide sent the haven currency to four-week peaks. Canada’s dollar firmed ahead of the country’s employment report for June that’s forecast to show a rebound in hiring. While market sentiment improved Friday, cross currents remain. Investors this week dialed back their enthusiasm over the economic outlook as Covid variants clouded prospects for the recovery. Treasury yields found a tentative floor with the 10-year around 1.34% after dropping as low as 1.25% the previous day. Market volatility is likely to remain elevated ahead of U.S. numbers next week on consumer inflation, which spiked to 5% in May, the highest in over a decade, and retail sales.


Canada’s dollar recovered from 11-week lows after the country’s job market bounced back more than expected. Canada stepped up hiring for the first time in three months in June when employers netted 230,700 jobs, a robust amount that lowered unemployment to 7.8% from 8.2%. The details of the report were mixed which could limit fuel for a loonie comeback as all of the job gains came from part-time positions. The overall positive jobs report sets the stage for the Bank of Canada’s policy decision on July 14. The market appears mixed over whether the central bank will further taper its economy-boosting bond purchases. Doing so would be loonie-positive.


The euro kept its chin above three-month lows and was on track to end the week little changed against the greenback. The euro caught a reprieve this week as sliding stocks sent some euro bears running for the exits. Nevertheless, the ECB’s adoption this week of a slightly higher inflation target of 2% can serve as a longer run negative for the single currency as it gives central bankers more latitude to maintain low rate policy for longer.


A firmer UK pound made a bid to end the week with a gain against the greenback which if realized would allow it to dodge back to back weeks in the red. The pound Friday took its main cue from improved, though still cautious, risk sentiment, rather than disappointing data that bolstered the Bank of England’s accommodative bias. British growth slowed to a 0.8% increase in May, below forecasts of 1.5% from a downgraded increase of 2% in April.

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