Currency Market Analysis

Sep 08, 2021 | Currency Market Analysis

Global Themes

Extending a rebound, the U.S. dollar bounced to one-week highs against a basket of rivals. The buck rose to one-week peaks against the euro and sterling, and flirted with two- and four-week highs versus the loonie and yen. The dollar’s nascent turnaround from one-month lows stems from higher Treasury yields, market caution ahead of central bank meetings this week in Canada and Europe, and mounting worries about global growth. Last week’s mixed U.S. jobs report didn’t torpedo prospects for the Fed to reduce stimulus this year, with markets eyeing a policy taper to commence by November. No policy changes are expected from the Bank of Canada today ahead of a federal election on Sept. 20. The ECB Thursday is also expected to keep its powder dry despite area inflation running at 10-year highs. Low expectations for policy changes could translate into a greater risk of FX market volatility should either central bank surprise.

CAD

Canada’s dollar fell to 12-day lows against the recovering U.S. dollar. For the loonie today, it’s all about the Bank of Canada when it issues a policy decision at 10 a.m. ET. No changes are expected in the run-up to the national election on Sept. 20. Key for the loonie will be whether Ottawa signals a loss of confidence in the economic outlook after the economy unexpectedly went backwards in the spring. The loonie faces another event risk in the country’s monthly jobs report on Friday that’s forecast to show the economy netted 100,000 jobs in August, slightly more than July.

EUR

The euro slipped to one-week lows on caution ahead of an important rate meeting of the European Central Bank. The ECB on Thursday is not expected to signal any imminent changes in policy despite area inflation running a full percentage point above the central bank’s 2% goal. Policymakers have said that higher inflation will likely prove temporary. Reinforcing the steady outlook for European interest rates, a gauge of German investor confidence this week deteriorated for a fourth month in a row.

GBP

Sterling fell to one-week lows as the greenback extended a recovery and the UK government sought to raise taxes to help fight the health crisis. Higher taxes would offer more resources for Prime Minister Boris Johnson to tackle the pandemic, but they could also dampen recovery prospects and potentially lead the Bank of England to delay plans to raise borrowing rates from crisis lows.


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