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Currency Market Analysis

Jul 23, 2021 | Currency Market Analysis

Global Themes

A buoyant greenback held firm near multimonth highs and was on track for a second gain in as many weeks. The dollar was broadly stronger Friday with gains against the euro, yen and sterling, though the Canadian dollar steadied ahead of news this morning on area consumers. The buck has weathered a volatile week for markets that remain pitted in a tug-of-war over worries about the virus and optimism that the global recovery remained intact. As the world’s most liquid currency, the dollar has garnered its share of safe haven flows. Markets also have an eye on the Fed ahead of its policy announcement on July 28. A central bank seen taking a step closer to rolling back stimulus would likely sound hawkish enough to help the dollar maintain its roll.


A subdued euro inched closer to 3 ½ month lows against its U.S. peer. The euro had its downward trajectory reinforced this week after the ECB unveiled new forward guidance that suggested it would keep record low lending rates in place for longer. By contrast, the Fed next week is likely to accelerate talks on tapering stimulus as the world’s biggest economy gains steam. A dovish ECB that collides with a hawkish Fed next week could suggest that the euro’s slide may only be in the early innings.  


A resilient Canadian dollar was poised for its first weekly gain of the month after area retail sales weren’t as bad as expected. Consumer spending fell 2.1% in May compared to forecasts of a 3% slide. May likely signaled the end of a Covid-related soft patch for the economy as Canada forecast a robust 4.4% spike in spending for June. The loonie was broadly flat against the firmer greenback as oil prices moderated around $71. Canada next week issues top-tier numbers on inflation (Wednesday) and May growth (Friday).


Sterling was subdued Friday but a recovery in risk appetite helped it all but erase losses for the week that at one point saw it plumb five-month lows against the dollar. The market meanwhile focused on the downside of mixed UK data. On the bright side, retail sales bounced back strongly with a forecast-topping gain of 0.5% in June. But the more timely services growth for July staged a sharper than expected deceleration to 57.8, a nearly 5-point fall from June.

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