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Currency Market Analysis

Jul 30, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar limped to the July finish line, wallowing at one-month lows and on pace for its worst week since May. Recovery-positive data from Europe lifted the euro to one-month highs, while rivals from Canada and Britain notched three- and five-week peaks, respectively. The dollar’s summer rally broke down after the Fed this week signaled it was in no rush to rollback stimulus, cautious guidance that was validated by slower than expected U.S. second quarter growth and more evidence of an uneven recovery in the labor market. Numbers from Europe today showed the bloc emerged from a double-dip recession with stronger than expected second quarter growth. The buck’s coming prospects may hang on the health of America’s job market which takes center stage next week with the July jobs report due Aug. 6.


Sterling jumped to fresh five-week highs as the dollar remained on the defensive. Doubts about the Fed reducing stimulus anytime soon, coupled with better virus data from Britain, hastened sterling’s recovery from five-month lows reached last week. The pound faces a tall event risk next week when the Bank of England on Aug. 5 issues a policy decision and new economic forecasts. A less dovish or even hawkish tone could raise the roof for sterling.


Canada’s dollar hovered near three-week highs against the greenback after area growth met expectations. Canada’s economy contracted for a second straight month in May but at a slower pace of 0.3%, compared to April’s decline of 0.5%. Canada forecast a rebound as soon as June when it sees growth jumping 0.7% as the country loosened restrictions. Canada forecast that second quarter growth, due on Aug. 31, would slow to an annual rate of 2.5% after it grew 5.6% during the first quarter.


The dollar edged off one-month lows following reassuring news today on the U.S. economy. Personal spending and incomes both surprised to the upside, rising 1% and 0.1% respectively in June. The Fed’s inflation yardstick accelerated to 3.5%, a tick higher than May but a couple ticks below forecasts of 3.7%. The inflation data was reassuring in that it was a tentative sign that prices may be at or near a peak. While the dollar suffered a notable setback this week, how significant it could prove may be gleaned by nonfarm payrolls next week with forecasts of faster hiring around 900,000 for July after June’s already robust gain of 850K.  


The euro was stronger for the week and on pace to eke out a July gain thanks in part to area data today that showed faster growth, lower unemployment and higher inflation. The euro zone grew at a 2% rate during the second quarter, topping forecasts of 1.5%. Unemployment fell unexpectedly to 7.7% in June from 8% in May, while inflation jumped more than expected to 2.2% in July from 1.9% in June. While encouraging, it may be tough for Europe to sustain the momentum in the face of the surging Delta variant of the virus.   

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