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Currency Market Analysis

Sep 02, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied but maintained a subdued bias ahead of fresh readings on America’s job market. Sterling and the euro hovered around two- and four-week highs respectively against the greenback. Commodity and emerging market currencies like the loonie and peso also maintained the upper hand against the dollar. Since it powered to 9-month highs two weeks ago, the dollar index has fallen about 1.5%. Signs of a moderating U.S. economy, along with the Fed maintaining a dovish outlook for interest rates, have pushed the dollar off its peak. The Fed wants to see further employment gains before it starts to taper its asset purchases which aim to push down long term lending rates to spur borrowing and spending. Weekly jobless claims print today, followed by the August jobs report on Friday. Key for the buck will be whether the data add to or allay concerns about a moderating pace of economic recovery.


The U.S. dollar pared declines after the job market delivered reassuring news on the eve of America’s monthly employment report. Weekly jobless claims improved to fresh pandemic lows of 340,000 which was 14,000 fewer than last week and some 5,000 below forecasts of 345,000. The data was consistent with a resilient job market in the face of rising Covid-19 cases and thus positive for the Fed to start tapering stimulus. How soon the Fed moves will partly hinge on nonfarm payrolls Friday. Forecasts call for hiring to slow to 750,000 in August from 943,000 in July, a still robust amount that’s seen lowering unemployment by a couple ticks to 5.2%.


The loonie was broadly flat with downside supported by oil holding firm around $69. Canada reported a smaller than expected trade surplus of C$778 million in July which was well below forecasts of C$1.70 billion. The data offered another sign of a moderating Canadian economy after data this week showed growth shrank 1.1% during the second quarter. The loonie faces daunting event risks ahead with a Bank of Canada policy announcement on Sept. 8, followed by a federal election that’s now considered a toss-up on Sept. 20.


The euro was camped near four- and six-week peaks against the dollar and sterling, respectively. The euro has recovered from recent 9-month lows against its U.S. counterpart thanks to data showing the highest inflation in the euro bloc in 10 years. ECB policymakers are finally getting their wish for higher prices. Still, policymakers have maintained the higher inflation is likely to prove temporary. Moreover, Europe’s long struggle to attain inflation around its 2% goal suggests policymakers may be willing to tolerate above target prices for the foreseeable future.


Sterling fared mixed as it hovered around two-week highs against the dollar, but slipped to six-week lows against the inflation-buoyed euro. A lighter week for UK economic data has left the pound largely tracking broader market sentiment which has found support from the view that the Fed appears in no rush to taper stimulus as the Delta variant clouds the economic outlook. Data Friday is forecast to confirm that Britain’s economy-driving service sector decelerated in August.

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