Currency Market Analysis

Jul 15, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar ticked higher Thursday but kept to confined ranges. The buck was flat to firmer against sterling and the euro, while a decline in oil and risk appetite weighed on the Canadian dollar. The greenback stepped off three-month highs after the Fed chair this week assuaged inflation worries and signaled an economic glass that remained half empty. Mr. Powell reiterated that the current bout of high inflation should subside and signaled no imminent changes in policy, with a complete recovery from the pandemic recession “still a ways off.” The Fed’s dovish near-term bias continues to undercut bouts of dollar strength. With the Fed reassuring that inflation should ultimately fade, Treasury yields slipped with the 10-year around 1.33% after closing earlier this week above 1.41%. Today brings another day of congressional testimony by the Fed chief and a host of U.S. indicators, including weekly jobless claims.

USD

The U.S. dollar remained near session highs following better news on America’s labor market. Weekly jobless claims improved by 26,000 as they fell to 360,000 in the latest period, marking a fresh pandemic low. While encouraging to see the improvement, jobless claims are still running at elevated levels which bolsters the Fed’s view that the recovery is “still a ways off.”

EUR

The euro slipped but keep to the range against the dollar in largely listless summer trade. Subdued sentiment leaves the euro vulnerable to renewed selling when it rallies. Meanwhile, the dollar’s improved tenor has allowed for somewhat short-lived pullbacks from three-month highs. Data Friday is forecast to confirm that euro zone inflation rose at a 1.9% annual rate in June, just below the ECB’s new target of 2%.

GBP

Sterling ebbed and flowed Thursday as it absorbed an unexpected rise in UK inflation which inched up to 4.8%. Losses were limited for the pound as data this week showing the highest UK inflation in years (2.5%) could potentially herald an earlier end to the Bank of England’s bond buying program, according to policymaker Michael Saunders.

CAD

The Canadian dollar softened as the greenback enjoyed a data-inspired boost. No major changes to the big picture outlook for Canadian monetary policy caused the loonie to end the previous day little changed. The Bank of Canada Wednesday left interest rates unchanged at 0.25% and announced it would spend C$1 billion less each week in supporting the economy. The BOC’s interest rate guidance was unchanged, anticipating potential liftoff around the latter half of 2022.


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