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Currency Market Analysis

Aug 02, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar started August on its back foot as it remained in a post-Fed funk. The subdued greenback largely supported the euro, sterling and Canadian dollar. The greenback skid nearly 1% last week for its worst performance since May. The dollar fell from multimonth highs after the Fed signaled it wasn’t as close to rolling back stimulus as markets had previously expected. With America’s central bank wanting to see a stronger job market before tapering its monthly bond purchases, markets penciled in an announcement for some time during the final quarter of the year, compared to prior expectations of as soon as August or September. With the job market holding the keys to the policy outlook, the greenback could have a heightened sensitivity to this week’s marquee event: The July jobs report on Friday. Strong hiring could set the stage for a sooner rollback in stimulus. 


A firmer loonie kept within arm’s reach of three-week highs against its U.S. rival. The local dollar’s rise was limited as oil started August with a 1% slide to around $73. Canada’s job market will be a key driver of loonie sentiment this week. The Friday survey is forecast to show robust hiring for a second straight month, with July job growth seen up by nearly 180,000 following a surge of more than 230,000 in June. Unemployment is forecast to fall to a pandemic low of 7.4% from 7.8%.


The euro rose toward one-month highs, boosted by the weaker dollar and better than expected data from top economy Germany. Both German factory growth and retail sales proved stronger than expected in the latest period, news that added to growing, though still cautious, economic optimism. Next up for the German economy: Industrial orders Thursday and factory output Friday with forecasts suggesting renewed growth. 


Sterling was little changed against the dollar as it consolidated a recent rally ahead of an update Thursday from the Bank of England. The UK central bank this week will issue a policy statement along with new forecasts for the economy. Markets have penciled in a mildly hawkish tone from the BOE. Nevertheless, the pound could see some volatility if the BOE should play up downside risks to growth from the pandemic situation.

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