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Currency Market Analysis

Jul 20, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar sat atop multimonth highs as markets kept a wary eye on virus variants. The buck mostly steadied as global markets edged back from the precipice following the biggest rout in months the previous day. While generally steady, the greenback scaled fresh 5 ½ month peaks against the UK pound. England’s move this week to relax most restrictions did more to instill as sense of anxiety rather than usher in calm. The big worry is the uncertainty that Covid-19 variants represent, along with their potential to impinge the global recovery from the pandemic. The dollar continues to benefit as a safe harbor during turbuluent times. Still, market instability carries a negative for the buck in that it could lead the Fed to delay plans to taper stimulus, something that collapsing Treasury yields appear to be signaling. The yield on the 10-year Treasury kept below 1.20% after ending last week at 1.30%.


The euro remained on the defensive after falling this week to more than three-month lows against its American counterpart. The euro’s descent so far has been a fairly slow and orderly one, helped in part by its advance against the beleaguered UK pound. A true test of underlying euro sentiment arrives Thursday when the ECB issues a policy decision and new guidance. The 19-country central bank is less likely to pivot away from economy-boosting measures given heightened uncertainty brought on by the Delta strain.


A downbeat UK pound sank to 5 ½ month lows as worries over the virus dampened optimism over the economic outlook. The pound’s summer swoon gathered pace this week as Britain pressed ahead with plans to relax most restrictions linked to the pandemic while key members of the government, including the prime minister, self-isolated. With the Delta strain in the limelight it’s likely to dilute recent hawkish Bank of England rhetoric and keep it confined to a minority camp of central bankers. 


Canada’s dollar stabilized a bit after its worst day in more than a year when it shed 1% against the greenback and fell to 5 ½ month lows. The slide robbed the loonie of gains for the year. Canada’s dollar found a tentative floor Tuesday as oil edged up after its more than $5 plunge to $66, the lowest level since late May. Oil has fallen rapidly from 2014 highs near $77 in early July as the promise of more supply from the OPEC cartel collides with the Delta variant of the virus that threats to crimp demand.

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