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Currency Market Analysis

Aug 06, 2021 | Currency Market Analysis

Global Themes

Expectations of reassuring news today on America’s job market saw the U.S. dollar lead its major peers and climb to one-week highs. The euro and yen fell to one-week lows while the greenback ticked up versus rivals from Britain and Canada. The dollar has erased about half of last week’s losses when it shed nearly 1% for its worst week since May. Recent readings on the U.S. economy depict a recovery coming in fits and starts. To be sure, private sector hiring this week disappointed but weekly jobless claims improved for a second straight week. Today’s July jobs report is expected to show hiring accelerated at a robust rate of 870,000 which is forecast to lower unemployment by a couple ticks to 5.7%, a new pandemic low. A jobs report that’s at least in line with expectations would allay concerns about a moderating pace of recovery and help green light an earlier reduction in Fed stimulus, scenarios seen as dollar positive.

CAD

Canada’s dollar fell Friday and was on track for a losing week after local jobs data underwhelmed while hiring south of the border accelerated by more than 900,000 jobs for a second straight month. Canada netted 94,000 jobs in July, a little more than half the consensus forecast of a gain of nearly 178,000. Unemployment fell less than expected to 7.5% from 7.8%. The details of the report would solid as most of the job gains came from the more meaningful and generally higher paying full-time positions.

USD

The dollar scored fresh gains after stronger than expected hiring last month allayed concerns about a moderating pace of recovery and helped to green light an earlier taper in Fed stimulus. America netted a massive 943,000 jobs in July, well above forecasts of 870,000. Job growth in both May and June got revised higher by a combined 119,000. The sharp hiring spree pushed unemployment down to 5.4%, a pandemic low, from 5.9%. Strong hiring could mean hawkish hints from the Fed at its late August summit of global central bankers in Jackson Hole, Wyo.

GBP

Ahead of U.S. jobs data, sterling was little changed and on track to finish a second consecutive week stronger versus the greenback. A winning streak may hinge on the health of America’s job market which holds the main key to when the Fed will reduce stimulus. The pound found support this week from a rosy outlook from the Bank of England that kept the UK central bank on track to reduce stimulus over coming months.

EUR

The euro slipped to 9-day lows against the dollar after new data from Germany offered evidence of a still fragile factory industry. Industrial output from the bloc’s biggest economy surprised to the downside by sinking 1.3% in June compared to forecasts of a modest gain. The data backed the view that the ECB would go slower than the Fed in weening the economy off support that’s pushed down yields, undermining the euro’s allure.


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