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Currency Market Analysis

Sep 30, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar rallied into month- and quarter-end as it notched one-year highs on a trade-weighted basis. Broad gains saw the dollar scale nine- and 14-month peaks against sterling and the euro, respectively. Elsewhere, the Japanese yen fell to February 2020 lows, while stronger iron ore prices boosted the Canadian and Australian dollars. The greenback’s surge to fresh highs for the year stems from expectations for the Fed to scale back stimulus by year-end, safe haven flows from rising wariness over global growth, and higher Treasury yields. The yield on the benchmark U.S. 10-year note topped 1.50% this week for the first time in three months. The U.S. economy releases key surveys today on weekly jobless claims, seen improving, and the final estimate of second quarter growth.


Sterling remained anchored around 9-month lows against the greenback as domestic economic uncertainty continued to take a toll on sentiment. Worries about the UK’s economy health have been exacerbated by accelerating inflation and a fuel crisis that taken together are likely to squeeze consumer spending.


Canada’s dollar strengthened alongside firm commodity prices. For the month, USD/CAD was up nearly 1%, while for the quarter it has risen about 2.7%. For 2021, the pair was broadly unchanged. The price of oil early Thursday kept above $73, so within striking distance of multimonth highs around $75. Next to drive the loonie will be a Friday survey on Canadian growth for July which is forecast to contract for a third time in four months.


The euro sank to fresh July 2020 lows against the surging greenback. Expectations for the Fed to normalize monetary policy before the ECB are largely behind EUR/USD’s decline of about 2% in September and more than 5% fall for the year. For the quarter, the pair was down approximately 2.3%.


Mixed U.S. data largely offset to leave the greenback camped near fresh 2021 peaks. The good news was that the U.S. economy grew at a slightly quicker than expected annual rate of 6.7% during the second quarter. But the labor market remained home to much uncertainty as weekly jobless claims rose for a third straight week to 362,000 compared to forecasts of 335,000. The jump in weekly jobless claims suggests any acceleration in September hiring might be more muted.

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