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Currency Market Analysis

Sep 09, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar’s multi-day rebound petered out in central bank-driven trade. The euro and sterling bounced off one-week lows while the Canadian dollar recovered from a two-week bottom. The euro moved higher after the European Central Bank said it would “moderately lower” its asset purchases under its pandemic emergency purchase program dubbed PEPP. The baby step toward tapering stimulus was seen as appeasing ECB hawks who want to reduce stimulus to put a lid on the highest inflation in 10 years. A busy North American session is just getting started and features a press briefing by ECB President Christine Lagarde and a fresh reading on America’s job market. Weekly jobless claims are forecast to improve to new pandemic lows below last week’s 340,000.


The euro edged up but broadly kept to the range after the ECB made a modest tweak to its stimulus program. With inflation hitting 3% last month, the highest in a decade, the ECB said it would “moderately lower” the amount it spends each month to support the 19-country economy. The ECB also revised up its forecasts for 2021 growth and inflation which it now sees at 5% (vs 4.6% in June) and 2.2% (vs. 1.9% in June) respectively.


Canada’s dollar wavered alongside oil markets with crude choppy around $69. The loonie fell to two-week lows this week after the Bank of Canada stood pat on policy, not wanting to make a major move so close to the Sept. 20 federal election. The BOC left interest rates and its weekly asset purchases unchanged at a record low of 0.25% and C$2 billion respectively. The central bank reaffirmed that it expects the economy to accelerate over the latter half of the year, though downside risks from the fourth wave of the virus and ongoing supply chain issues represent downside growth risks. Canada’s jobs report Friday will shed light on whether the economy is experiencing a third quarter revival.


U.S. jobless claims improving to fresh pandemic lows kept a floor under the dollar and, more importantly, kept the Fed on track to taper stimulus this year. Jobless claims printed at 310,000 in the latest week, a new pandemic low, and below forecasts of 335,000. Jobless claims are now on the cusp of cracking below 300,000 and edging closer to pre-pandemic levels. Bullish jobless claims suggest that the sharp slowdown in August hiring was more of an aberration.  


Sterling recovered from its lowest level in nearly two weeks as the greenback softened and the dust settled from UK government’s plans to raise taxes. The pound regained its composure as the market took the view that higher taxes were unlikely to materially slow the economic recovery. The broadly stronger pound advanced against the dollar and euro and now sets its sights on UK growth data Friday, seen moderating in July from June.   

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