Currency Market Analysis

Jul 21, 2021 | Currency Market Analysis

Global Themes

A nascent stabilization in global markets took hold yet the U.S. dollar continues to stand tall against its rivals. The dollar this week has clocked three-month highs against the euro and its strongest in five months versus peers from Britain and Canada. Elsewhere, the greenback rose to fresh 2021 peaks against counterparts from Australia and New Zealand. Lingering uncertainty over how the Delta strain could impact global growth weighed on emerging markets. What’s been bad for markets has been good for the dollar. Markets’ main worries have been the dollar’s primary sources of strength. Rising cases of the Delta variant of the virus have steered safe haven flows into the greenback. Inflation also remains a top concern given that it’s still unclear when higher prices would fade. The longer inflation lingers, the sooner the Fed could move to cutback on stimulus that has restrained the dollar.

GBP

Sterling nursed a black eye as it stuck near its lowest level in five months versus the dollar. Rising caseloads of the virus in Britain, coupled with the country this week rolling back most restrictions, have been a recipe for increased economic uncertainty. GBPUSD last week logged its worst performance in a month while this week it squandered its 2021 gains, a rapid decline that could give way to tentative stabilization.

CAD

Higher oil helped the loonie steady and move back into positive territory for the year against the dollar. Oil climbed a buck to $68 which helped put some wind in the loonie’s sails after it skid to five-month lows this week. The loonie’s tentative rebound may hinge on Canadian retail sales on Friday with forecasts calling for a second straight monthly contraction in May due to restrictions to contain a severe third wave of Covid-19.

EUR

The euro favored early April lows and maintained a subdued bias on the eve of a policy decision by the ECB. No policy changes are anticipated Thursday but the central bank is expected to unveil fresh policy guidance. Few expect the 19-nation central bank to veer from its dovish stance, particularly with global economic uncertainty reaching a fever pitch amid worries that the Delta variant could slow the recovery.


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