Currency Market Analysis

Sep 03, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar overnight fell to fresh lows but steadied on caution ahead of today’s big jobs report. The euro flirted with one-month highs while rivals from Britain and Canada notched mid-August peaks. All eyes are on America’s August jobs report for clues on when the Fed might start to unwind stimulus. The dollar has steadily wilted since it reached highs for the year a couple weeks ago, the product of weaker data and uncertainty over when the Fed will start to shrink its massive, $120 billion a month bond buying program. Forecasts suggest hiring downshifted last month to around 728,000 jobs, down from about 940,000 in June and July. The dollar has struggled this week on the view that hiring could undershoot forecasts. Disappointing data would aggravate worries about a moderating recovery and likely add fuel to the dollar’s decline. A strong upside surprise may be needed to help stabilize the dollar.

GBP

Ahead of America’s monthly jobs report, sterling jumped to mid-August highs versus the dollar and was on track for a second straight weekly gain. A wilting greenback and buoyant risk appetite served as catalysts to push the pound higher. The dollar’s fall has helped to overshadow uninspiring UK data this week that confirmed weaker manufacturing and services growth in August.  

CAD

Ahead of America’s monthly jobs report, sterling jumped to mid-August highs versus the dollar and was on track for a second straight weekly gain. A wilting greenback and buoyant risk appetite served as catalysts to push the pound higher. The dollar’s fall has helped to overshadow uninspiring UK data this week that confirmed weaker manufacturing and services growth in August.  

USD

The dollar fell to fresh lows after a sharp slowdown in U.S. hiring suggested any tapering in Fed stimulus would materialize later rather than sooner. The U.S. added a lackluster 235,000 jobs in August which was three time weaker than forecasts of a gain of 728,00. The slower, though still solid, pace of hiring last month was enough to lower unemployment to a new pandemic low of 5.2%. While weaker, the dollar had its fall broken by news that wage inflation topped forecasts, news that will keep the door cracked for the Fed to taper stimulus sooner than markets may currently appreciate. Other bright spots in the data: Hiring in June and July got revised higher with the latter topping 1 million jobs.

EUR

The euro hovered at one-month highs with upside slowed a bit by data that offered a reminder of the bloc’s vulnerable economy. The euro found a near-term game changer in news this week that area inflation shot to 3% in August, the highest in a decade, and a move that, if sustained, could spur markets to pull forward expectations for the ECB to reduce stimulus. But data today on euro zone retail sales served as a reality check as consumer spending unexpectedly tumbled 2.3% in July versus forecasts of a modest gain.


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