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Currency Market Analysis

Jul 26, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar moderated from 3 ½ month highs on caution ahead of a midweek Fed decision. Across the board softness weighed on the dollar versus counterparts from Europe, Japan and Canada. Investors are inclined to pull some chips off the table as the dollar’s summer rally faces event risk in the form of a Fed meeting. America’s central bank is likely to advance talks on rolling back stimulus but stop short on outlining a timeframe for when such a move might come. Providing the virus situation doesn’t spiral out of control and materially dampen the economic outlook, the Fed could unveil a taper timeline later in the third quarter. Sharing center stage with the Fed will be big ticket data from around the world like U.S., European and Canadian economic growth later this week.


Canada’s dollar rose as the lower U.S. dollar overshadowed a decline in oil markets. Crude slipped below $72, a move that limited scope for loonie appreciation. Canada’s currency took the scenic route to a weekly gain against the dollar last week as it momentarily erased its advance for all of 2021. Look for the loonie to take steers from domestic inflation Wednesday, seen moderating to a 3.2% annual rate from 3.6%, the highest in 10 years, and growth for May which is forecast to fall by 0.3% for a second straight month.


Sterling rose after dropping the last two weeks against the greenback. Britain’s virus situation holds a key to the outlook for the pound so it’s helping that the latest data showed a decline in cases. The outlook for the pandemic remains cautious at best after Britain last week rolled back most restrictions which coincided with a spike in cases. Sterling could stick to the range this week as event risk rises ahead of next week’s meeting of the Bank of England.


The euro bounced higher after it logged its second consecutive down week against the greenback. The euro has fallen to 3 ½ month lows as divergent central bank forward guidance between the hawkish Fed and dovish ECB takes a toll. The euro capitalizing on the softer dollar allowed it to sidestep data that showed a surprise decline in German business confidence in July. The euro bloc issues Q2 GDP on Friday that’s forecast to jump by 1.5% after it slipped 0.3% in Q1.

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