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Currency Market Analysis

Aug 05, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar continued to bounce around a fairly tight range ahead of Friday’s all-important July jobs report. Sterling led European currencies higher after the Bank of England left UK monetary policy unchanged and painted a bullish near-term picture of the economy. Canada’s dollar tracked fellow commodity rivals from Australia and New Zealand higher. The dollar has a heightened sensitivity to data as it helps to influence when the Fed will dial back on stimulus. The buck initially fell Wednesday after ADP job growth slowed sharply, adding to growing evidence of a moderating economy. But the dollar ultimately finished stronger Wednesday after the Fed’s No. 2 official, Richard Clarida, sounded hawkish on the policy outlook, a tone that was backed by record strong services growth. The dollar’s next cues will come from weekly jobless claims today and nonfarm payrolls Friday.

EUR

The euro hovered below its recent highs on caution ahead of fresh news on America’s job market. The euro started Thursday with a gain thanks to signs of a strengthening German economy. German industrial orders soared more than 4% in June, double expectations and the fastest rate in 10 months.

GBP

Sterling rose toward five-week highs after the Bank of England sketched a brighter near-term outlook for the British economy. As expected, the BOE left its interest rate at record lows of 0.10%, and kept its bond buying program unchanged near GBP900 billion. The bank forecast robust growth of 7.25% and 6% for this year and next year respectively, while it sees inflation ending the year at a red hot 4%, outcomes that if realized could allow the central bank to reduce stimulus over coming months.  

USD

Feed the U.S. dollar some data and watch it move. The dollar trimmed session declines after good economic news on the eve of the monthly jobs report. Weekly jobless claims kept below 400,000 for a second straight week as the latest number printed at 385,000 from a revised 399,000 the prior week. The data is consistent with the labor market remaining on a bumpy road to recovery. How nonfarm payrolls fare Friday will be important for the dollar amid the mixed signals on America’s economic health. A print below forecasts of 870,000 jobs in July could weigh on the dollar while a print above expectations would likely prove dollar positive as it would keep a near-term Fed policy taper on the table.

CAD

Canada’s dollar strengthened as oil prices climbed toward $70 and the nation reported a surprise trade surplus and the biggest one in more than a decade. A nearly 9% surge in exports pushed Canada to a trade surplus of C$3.23 billion in June, the biggest since September 2008. The return to a trade surplus suggested a broadening economic recovery that kept the Bank of Canada on a path to end its bond buying program as soon as Christmas. Canada’s jobs report Friday is forecast to show a gain of 177,500 jobs in July which is expected to lower unemployment to a pandemic low of 7.4% from 7.8%.


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