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Currency Market Analysis

Aug 10, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rolled to fresh highs with a key test of its strength looming Wednesday. The greenback climbed to new multiweek highs versus rivals from Britain, Canada and Switzerland, while the euro fell to fresh four-month lows. The buck resumed a summer surge after strong jobs data last week helped pave the way for the Federal Reserve to scale back emergency support measures that have anchored interest rates. Meanwhile, a chorus of Fed officials this week have made the case for the central bank to dial back on stimulus before year-end. The buck is also garnering safe haven appeal due to elevated worries about the delta variant dimming prospects for global growth. Next to influence the dollar’s direction is U.S. inflation data Wednesday. Inflation holding near 13-year highs above 5%, which is in the cards, would bode better for the dollar’s outlook as it would strengthen the argument for the Fed to reduce stimulus.


Sterling hovered near two-week lows against its resurgent U.S. counterpart. Wavering global stocks and the dollar back on a summer roll kept the pound partially on the defensive. Against the sputtering euro, however, sterling climbed to fresh February 2020 highs. Better prospects for growth and central bank policy normalization have the euro on its back foot versus rivals from the U.S. and Britain.


Signs of a moderating German economy put a stronger headwind on the euro which edged closer to 2021 lows against the greenback. German investor confidence plunged to 40.4 in August, its third decline in as many months and its weakest reading of the year, compared to forecasts of a smaller fall to 56.7 from 63.3. Investor sentiment darkened over worries about a fourth wave of Covid-19.


Generally subdued oil and rising U.S. Treasury yields conspired to weigh on the Canadian dollar. The loonie hovered near two-week lows as the greenback resumed a summer rally. Robust U.S. hiring has seemingly put the Fed on a smoother and somewhat faster path to dialing back on stimulus that, while positive for the recovery, has pushed down interest rates, denting the greenback’s appeal. Oil was up nearly 2% early Tuesday though prices kept well below $70 and not far from late May lows.

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