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Currency Market Analysis

Aug 20, 2021 | Currency Market Analysis

Global Themes

For a second straight day, the U.S. dollar index vaulted to November 2020 highs, a sign of growing worries about the outlook for global growth. With the delta variant rising and spooking markets, the dollar ascended to one-month highs against the UK pound, while it was at 2021 peaks versus the euro and loonie. Investor confidence deteriorated this week after New Zealand reported its first coronavirus infection in six months, U.S. consumer spending plunged, and Goldman Sachs slashed its outlook for U.S. growth this year to 6% from 6.4%. Commodity currencies continued to bear the brunt of the dimmer outlook as the Aussie and kiwi sank to November 2020 lows with the Canadian dollar crashing to December 2020 lows. The Fed, meanwhile, may be compelled to pivot away from low rate policy sooner as the job market strengthens and inflation remains elevated.

EUR

The euro dangled around fresh lows for the year as worries about global growth sent skittish investors running for cover in the greenback, the world’s most liquid currency. The Fed seemingly on a smoother and shorter path to tapering stimulus has also weighed on the euro given expectations for the ECB to move more cautiously in rolling back stimulus. European fundamentals will be in focus next week with preliminary factory surveys on Monday. Evidence of delta putting a crack in the bloc’s recovery could trigger another leg lower in the euro.

GBP

Sterling tumbled to new one-month lows, a decline that had it on the cusp of a recent February bottom against the greenback. Throwing salt on sterling’s wounds was news that UK retail sales unexpectedly plunged by 2.5% in July which wrongfooted forecasts of a second straight increase. While that was the largest drop in spending since January, households appeared more ‘consumed’ with the Euro 2020 tourney than venturing out to spend, suggesting the outlook for the consumer remains decent.  

CAD

Canada’s dollar plunged to eight-month lows as commodity currencies continued to bear the brunt of worries about delta slowing the global economy. Things went from bad to worse for commodity currencies this week as China’s economy continued to slow and global stocks and oil tumbled. Oil remained in the red Friday, around $62, the lowest in three months. The loonie didn’t find much support from Canadian retail sales which jumped 4.2% in June, a couple ticks below forecast. Canada forecast consumer spending would contract 1.7% in July as the country grapples with a fourth wave of the virus.


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