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Currency Market Analysis

Jul 29, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar fell to one-month lows after the Federal Reserve this week signaled it was in no hurry to reduce stimulus. The dollar’s summer rally suffering a Fed-induced setback pushed rivals higher as the euro, sterling and loonie all climbed to multiweek peaks. As expected, the Fed left interest rates parked just above zero. On its economy-boosting bond purchases, the Fed wants to see a stronger job market before reducing a program that it currently spends $120 billion every month. The Fed being tightlipped about when it would start to taper stimulus cast doubt on the central bank acting this year which frustrated some dollar bulls. Data holds the key to the dollar with numbers today on second quarter growth and the job market.


The UK pound strengthened to five-week highs against the weaker greenback. With the Fed demanding a stronger job market before it tapers stimulus, it suggested that the U.S. central bank may not move before its British counterpart, buoying sterling. Sterling capitalized on the setback to the dollar as GBPUSD turned positive for July and for 2021, a marked rebound from five-month lows last week.


The dollar fell to session lows after disappointing U.S. data corroborated with the Fed’s hesitancy to signal a reduction in stimulus anytime soon. America’s economy accelerated during the spring quarter but only barely as it grew 6.5%, a mere tick above the first quarter’s 6.4% pace. Weekly jobless claims, meanwhile, improved less than expected, printing at 400,000 compared to forecasts of 380,000 and the prior week’s upwardly revised 424,000. The dollar could suffer more losses if coming data suggests a 2021 taper is no longer on the table.


The euro jumped to three-week highs after a less hawkish Fed pushed the dollar broadly lower. The euro’s post-Fed bounce help dig it out of a July hole against the greenback. Whether the euro can end the month with a gain may hinge on key data. The U.S. issues its second quarter economic report card today followed by Europe on Friday.


The Canadian dollar remained in a month-to-date hole against the greenback, but a rally Thursday lifted it to two-week highs. Bullishness toward the U.S. currency diminished after the Fed cast doubt on a taper announcement anytime soon, a less hawkish tone that was validated by disappointing readings Thursday on the world’s biggest economy. The U.S. economy grew at a 6.5% annual rate during the second quarter, missing forecasts of 8.5%.

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