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Currency Market Analysis

Jul 19, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar’s summer surge kicked into a higher gear Monday that propelled it to fresh three-month peaks. As global markets cratered, the dollar soared to February highs versus the Canadian dollar, and strengthened to April peaks against the euro and sterling. The classic flight to safety also boosted the yen. Markets are rife with worries, spurring a flight to safe bets like the U.S. and Japanese currencies as well as government bonds. Markets are on edge over the fast spreading delta strain of Covid-19 which threatens to slow the pace of the global recovery. Meanwhile, oil markets tanked, sending prices below $70, the lowest level in over a month. The arrival of “Freedom Day” in Britain as it rolls back most restrictions also failed to install confidence as cases there continue to climb. Wall Street was poised to add to the previous week’s decline while the yield on America’s 10-year government bond fell below 1.23% compared to Friday’s close of 1.30%.

CAD

A stronger greenback and weaker oil markets converged to erase the loonie’s 2021 gains. USD/CAD turned higher for the year, helped in part by an OPEC agreement to boost oil supply which sent crude prices plunging 3% to below $70. The loonie also braced for Canadian consumer spending on Friday with forecasts of a second straight monthly decline. Weaker spending, if realized, would add to worries over rising Covid cases undermining the global recovery. 

EUR

The euro fell to more than three-month lows against its safer U.S. counterpart. Euro weakness also reflected expectations for the ECB this week to maintain dovish policy guidance to help the bloc’s wavering recovery remain on track. The ECB issues a decision and new policy guidance on July 22. EUR/USD is now nursing a 3.6% year-to-date decline.

GBP

The UK pound was shackled with negativity and uncertainty despite so-called “Freedom Day” arriving in Britain. While Britain’s economy stands to benefit from most restrictions being lifted, the outlook for growth has dimmed as cases continue to rise. Consequently, the British government’s lifting of restrictions failed to instill a sense of confidence which its playing out in a weaker sterling.


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