Currency Market Analysis

Jul 12, 2021 | Currency Market Analysis

Global Themes

Market caution reigned at the start of the week, weighing on risk sentiment and boosting the U.S. dollar. Across the board gains Monday lifted the greenback versus the euro, sterling and Canadian dollar. The risk sensitive Aussie dollar was pinned near 2021 lows. The dollar is off to a solid start to an eventful week that features fresh readings on U.S. consumer inflation and retail sales. Central banks also loom large as Fed Chair Jerome Powell speaks on Capitol Hill, and Canada issues a policy decision and new economic projections. U.S. inflation Tuesday and Mr. Powell’s economic testimony on Wednesday and Thursday will be weighed against expectations for the Fed to dial back on stimulus as soon as this year.

CAD

Bank of Canada Week started tepidly for the loonie as it added to the previous week’s decline. Global markets were in risk-off mode to start the week with oil below $74. Key for the loonie will be whether the BOC announces it will slow the pace of its asset purchases which aim to support the economic recovery by anchoring borrowing rates and spurring businesses and consumers to spend. The BOC issues its decision at 10 a.m. ET Wednesday (July 14) when it’s expected to keep its interest rate at record lows of 0.25%.

EUR

The euro declined Monday after it managed to eke out a gain last week. Worries about the pandemic slowing global growth whet appetite for safe plays like the U.S. currency. The euro was little changed after the head of the ECB, Christine Lagarde, over the week put markets on notice that the central bank would provide new guidance for monetary policy later this month. The ECB next meets on July 22.

GBP

Cautious investor confidence weighed anew on sterling, knocking it off an earlier two-week high against the dollar. Britain’s prime minister, Boris Johnson, could confirm as soon as today plans for the nation to remove most of its pandemic restrictions on July 19. UK economic optimism, a key force behind the pound’s outperformance this year, has moderated as concerns remain elevated about the Delta strain of Covid-19 undermining the global recovery, worries seen more supportive of the safe haven dollar.


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