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Currency Market Analysis

Sep 10, 2021 | Currency Market Analysis

Global Themes

Commodity and emerging market currencies, like the Canadian dollar and Mexican peso, rallied Friday, as risk sentiment brightened following constructive talks between the leaders of the U.S. and China. The greenback softened ahead of key U.S. inflation data but was still on track for a weekly advance. The euro rose while the UK pound notched one-week highs as it took the bright side of mixed UK data. The buck carried a narrow gain for the week into Friday as better news on the job market kept the Fed on track to taper stimulus this year. Weekly jobless claims extended an improving trend and hit new pandemic lows just above 300,000 in the latest week. U.S. producer prices, a gauge of business prices, are forecast to decelerate to 0.6% in August after jumping 1% in July. Elevated inflation would support the dollar and strengthen the case for the Fed to taper stimulus.


Canada’s dollar rose to session highs after a close to expectation jobs report kept the Bank of Canada on pace to taper stimulus next month. Canada added 90,200 jobs in August, a bit below forecasts of 100,000, and July’s increase of 94,000. Unemployment fell to a new pandemic low of 7.1% from 7.5%, partly due to a smaller work force. Given that the bulk of hiring came from more meaningful full-time jobs, it – along with the highest inflation in 10 years – kept the BOC on track to reduce stimulus as soon as bankers’ next meeting on Oct. 27.


The U.S. dollar remained subdued but its underlying prospects brightened after hotter than expected inflation. U.S. producer prices rose 0.7% in August and soared 8.3% over the last 12 months, the fastest annual pace since November 2010. The data was consistent with inflation remaining stubbornly high for longer, a scenario that increases the heat on the Fed to taper stimulus.  


The euro firmed Friday but kept to recent ranges while it was on track for a modest decline for the week. The single currency didn’t find much support from the ECB this week after it announced it would “moderately lower” the amount it spends each month on stimulus. The euro wavered this week with upside capped by German investor confidence deteriorating for a fourth straight month.


A stronger UK pound Friday made a bid for its third win in as many weeks against the greenback as local data was enough to kept alive the view that Britain could raise borrowing rates from crisis lows before the Federal Reserve. The UK economy got off to a slow start to the third quarter as July growth eked out a 0.1% increase, below forecasts of 0.6%. On the other hand, industrial production rebounded more than expected, jumping 1.2%.  

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