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Currency Market Analysis

Sep 22, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar kicked off a big day on mostly steady ground as gains against the yen and sterling were counterbalanced by weakness versus commodity currencies. Easing worries about Evergrande, China’s debt-plagued property builder, subsided and supported risk sentiment. U.S. stock futures rose along with oil which topped $71, boosting the Canadian dollar. Today marks the conclusion of the Fed’s two-day meeting when at 2 p.m. ET it will issue a statement and new economic projections, followed by a press briefing by Chair Jerome Powell. The Fed is expected to signal that it’s on track to taper stimulus this year without backing itself into a corner given uncertainties related to slower hiring and China’s economy. A hawkish outlook for policy that cements taper expectations for this year and an interest rate hike next year could help the dollar sustain its bull run. However, any ambiguity over tapering or rate hikes could check the dollar’s advance.


Canada’s dollar rebounded from one-month lows, boosted by a recovery in risk appetite. Wall Street futures signaled a positive start to trading, one seen hinging on the tone of the Fed’s statement and economic forecasts later today. The loonie is attempting to find its footing after political uncertainty ahead of this week’s federal election contributed to its decline. Canadian retail sales on Thursday, seen down for the third time in four months, will help guide expectations for the Bank of Canada to taper its weekly bond purchases.  


The euro was mostly steady ahead of today’s major policy update from the Fed. The Fed issues a customary statement and Chair Powell addresses the media but what’s unique about today is that the central bank will offer fresh economic projections and estimate when interest rates would liftoff from crisis lows. The market has priced in a cautiously hawkish message from the Fed, suggesting an elevated bar for the euro to stage a meaningful slide in its wake.


Global stocks rebounded but not the risk-sensitive UK pound, a telling sign for how sentiment has soured for a currency that has been one of the better performers this year. Evidence of the UK economy losing momentum has caused the pound to lose ground. The Bank of England renders a rate decision Thursday when it is expected to keep its base rate parked at a record low of 0.1%. Lackluster consumer spending suggests the economy decelerated this quarter, dampening expectations for Britain to raise borrow costs ahead of the ECB and Fed.

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