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Currency Market Analysis

Sep 13, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rolled to multiweek highs ahead of key U.S. data this week that could cement the case for the Fed to taper stimulus next quarter. The mostly stronger greenback rose against the euro and sterling, but softened against the oil-buoyed Canadian dollar as crude topped $70, the highest since early August. Key U.S. numbers this week include consumer inflation Tuesday and retail sales and weekly jobless claims on Thursday. Consumer prices are forecast to remain near 2008 highs above 5%. Jobless claims are expected to edge up from pandemic lows while retail sales likely fell for a second straight month. An improving job market against a backdrop of elevated inflation would be positive for the Fed to taper stimulus by November. The Fed announces it next policy decision on Sept. 22.


The UK pound was subdued ahead of local this week that could offer clues on the outlook Bank of England stimulus. Unemployment on Tuesday is forecast to fall a tick to 4.6%, while a midweek reading of inflation is forecast to accelerate to nearly 3% in August from 2% in July. A bounce back in retail spending Friday is in the cards. The pound continues to draw underlying support from expectations that the BOE could lift interest rates before the Fed and ECB.


The euro fell to two-week lows against its broadly stronger U.S. counterpart. The euro struggled last week after the ECB made a modest adjustment to monetary policy that was less hawkish than the market expected. The ECB, downplaying stimulus tapering, said it would “modestly lower” its asset purchases given the recent rise in euro zone inflation to 3%, the highest in 10 years. 


Oil topping $70 for the first time in over a month helped the loonie get off to a quick start to the week. Nevertheless, the loonie remained restless and rangebound with a week to go until the country’s federal election on Sept. 20. Downside for the loonie has been checked after solid hiring last month was consistent with the Bank of Canada further reducing its economy-boosting asset purchases as soon as next month. The loonie could strengthen this week in fresh inflation figures Wednesday accelerate from already 10-year highs of 3.7%, an outcome that would bolster the case for policy tapering.

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