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Currency Market Analysis

Sep 14, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied around September highs ahead of the week’s main economic event. The buck was little changed against the euro, sterling and Canadian dollar. Down Under, the Aussie dollar tumbled 0.5% to two-week lows after the country’s central bank sketched a dovish outlook for policy and downplayed prospects of higher interest rates next year. The week’s focal point has arrived with America’s August inflation report. Consumer prices likely cooled to a still-hot 5.3% annual rate. Still-elevated inflation would tend to put upward pressure on Treasury yields and the dollar and pave the way for the Fed to taper its bond buying program this year. Slower than expected inflation would tend to excite risk assets as it would temper expectations for the Fed to taper stimulus.


Cooler U.S. inflation and higher oil prices converged to boost the Canadian dollar. Oil edged further above $70 to new six-week highs amid output disruptions after U.S. storms. The loonie’s advance accelerated after a slowdown in U.S. inflation eased pressure on the Fed to reduce stimulus in the months ahead. Upside for the loonie could be slowed after Canadian manufacturing sales fell by a bigger than expected 1.5% in July, suggesting a weak start to the third quarter after growth unexpectedly contracted in the spring. Political uncertainty ahead of the Sept. 20 vote also could cap loonie upside. 


Sterling rose to more than one-month highs against the dollar after U.S. inflation underwhelmed. The pound also found support from constructive UK jobs data as unemployment improved by a tick to 4.6%. Still, the trend lower in unemployment may be tough to sustain once the government’s furlough program expires at the end of September. Solid jobs data added traction to the view that Britain’s central bank could lift interest rates before the Fed and ECB.


The euro moved its chin above two-week lows as market players shifted to the sidelines ahead of key U.S. inflation data. The euro had clocked one-month highs in early September only to lose ground after the ECB last week maintained a dovish outlook for monetary policy. Still, euro moves to the downside have been limited thanks to area inflation running at 3%, the highest in 10 years, and a full percentage point north of the ECB’s 2% goal.


The greenback slipped after slower U.S. inflation served as a big vote of confidence in the Fed’s view of higher prices ultimately proving temporary. Overall annual consumer prices slowed a tick to 5.3% as expected but less volatile core inflation ebbed more than expected to 4% from 4.3%. The data, while still elevated, suggests slightly less urgency for the Fed to taper its bond buying program which still remains penciled in for November. 

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