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Currency Market Analysis

Sep 15, 2021 | Currency Market Analysis

Global Themes

The coolest U.S. inflation in months kept the greenback below two-week peaks. Losses Wednesday against safer peers from Japan and Switzerland weighed broadly on the dollar, allowing rivals from Europe and Canada to edge higher. The dollar lost altitude this week after inflation showed signs of cresting, with the 0.3% monthly rise in August the slowest in seven months. Cooler inflation, which was forecast to rise 0.4% last month after rising 0.5% in July, increased already elevated uncertainty about when the Fed would scale back its bond buying program. While lower inflation is welcome news, it’s also a sign that the economy has lost steam due to the surge in Covid-19 infections. China added to global growth worries Wednesday after data on factory growth and retail spending proved the weakest in a year.


The loonie rose as oil markets notched new 6-week highs above $71 and Canadian inflation soared to 18-year highs. Canadian consumer prices soared at an annual rate of 4.1% in August, the highest since March 2003, and more than double the Bank of Canada’s goal of 2%. Forecasts called for inflation to jump 3.9% from 10-year highs of 3.7% in July. A measure of core inflation inched up to 1.8%. On balance, the data is consistent with a second half revival that the BOC expects, keeping the central bank on track to taper stimulus next month. Loonie gains have been muted, a reflection of political risk ahead of the Sept. 20 vote.


The U.S. dollar favored session lows following mixed data on the world’s biggest economy. The Empire State index, a barometer of monthly factory growth, unexpectedly strengthened with a print of 34.3 in September, above forecasts of 18, compared to 18.3 in August. But import prices unexpectedly contracted 0.3% in August, another sign that inflation may be slowly peaking.


Sterling firmed but kept under five-week highs as risk aversion largely overshadowed a record jump in UK consumer inflation. British consumer prices soared at a record rate of 3.2% in August, above forecasts of 2.9%, and more than a percentage point above July’s 2% increase. The data was consistent with the Bank of England’s view of inflation cresting around 4%. Should inflation prove hotter and more persistent than expected, It would bolster the pound-positive view of Britain raising interest rates before the Fed and ECB.


The euro kept to a tight range against the dollar and above two-week lows hit Monday. Data offered the euro a lift as U.S. inflation underwhelmed this week, weighing on the dollar, while euro zone industrial production topped expectations with a 1.5% jump in July, good news that corroborated with the ECB’s upgraded growth outlook for 2021.

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