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Currency Market Analysis

Aug 13, 2021 | Currency Market Analysis

Global Themes

U.S. dollar gains faded ahead of the weekend as it succumbed to profit-taking after surging to four-month peaks. With the dollar consolidating its gains, sterling and the loonie rebounded from multiweek lows while the euro bounced above four-month lows. Market activity was largely muted amid thin, late summer trade. The buck found fresh support this week from signs of a strengthening job market and inflation remaining elevated. Steady economic gains kept the Fed on track to dial down on stimulus. Yet uncertainty over when the Fed would announce plans to reduce stimulus put a cap on dollar gains. Next week brings big economic numbers from Europe, the U.S. and Canada that will shed fresh light on their respective recoveries.


The euro this week bent but didn’t break below a key threshold, tentative resilience that bought it some time above late March lows. How much of a reprieve the euro receives may hinge on big ticket euro zone numbers next week. Second quarter growth kicks off the week on Tuesday, followed by inflation Wednesday. It would likely take a solid set of data to help the euro form a meaningful bottom.  


The loonie was broadly steady and on pace for a weekly gain against its U.S. peer. A consolidating greenback coupled with oil in positive territory for the week put a floor under the loonie and a wind at its back. Still, USD/CAD remained very much rangebound in lackluster summer trade. Canada issues key readings next week on inflation Wednesday, and Friday when retail sales are forecast to surge around 4.4% in June after virus-related declines in April and May.  


The UK pound rose Friday but was still on track for a second decline in as many weeks. Sterling has underperformed of late as area data largely met expectations and thus didn’t alter an outlook of steady central bank policy for the foreseeable future. Britain next week releases key numbers on unemployment Tuesday and inflation on Wednesday. Should inflation moderate from August 2018 highs of 2.5% it would be consistent with a sidelined central bank, a scenario that could weigh on the pound.


The U.S. dollar gains for the week faded after U.S. import prices were consistent with moderating inflation. Import prices rose 0.3% in July, falling short of forecasts of 0.6%, and the previous month’s upgraded jump of 1.1%. The stronger dollar contributed to lower import prices as it lowered the prices of foreign goods. Signs of moderating inflation keep uncertainty high over when the Fed will announce plans to decrease stimulus, a factor behind the dollar’s late week slowdown.    

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