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Currency Market Analysis

Oct 06, 2021 | Currency Market Analysis

Global Themes

Rising worries over inflation sent U.S. stock futures tumbling and the greenback to fresh multimonth highs. Safe haven currencies are shining with the dollar, yen and Swiss franc in vogue, while the UK pound fell and the euro slumped to new 14-month lows. Commodity currencies bore the brunt of broad based risk aversion which knocked the Canadian dollar from four-week peaks. Soaring energy prices are threatening to put a stronger tailwind on inflation. Crude oil, while weaker this morning, has flirted with $80, a level last touched in November 2014. Elevated inflation has lowered the bar for the Fed to reduce stimulus this year and raise interest rates in 2022. The 10-year Treasury yield jumped to June highs above 1.54%, buoying the dollar. America’s labor market will dominate the spotlight over the balance of the week with ADP employment due today, followed by weekly jobless claims Thursday, and the week’s marquee event: Nonfarm payrolls Friday.


The euro sank to fresh July 2020 lows against the year’s popular play: The U.S. dollar. Risk aversion, rising Treasury yields, and shockingly bad German data all proved catalysts to unload the euro. German industrial orders plunged 7.7% in August which was more than three times weaker than forecasts of a 2.1% decline. The data contrast with news that America employers added more jobs than expected in September, according to payrolls company ADP.


The UK pound fell towards 9-month lows as global equity market risk aversion and rising Treasury yields sparked renewed demand for the greenback. While weaker, expectations for the Bank of England to raise interest rates in the months ahead have slowed the pound’s descent. UK central bankers appear poised to raise rates in the not too distant future with inflation, currently at 3.2%, the highest in years, forecast to end the year around 4%, or double the BOE’s 2% goal.


Commodity currencies tumbled despite an expected interest rate hike from New Zealand. Canada’s loonie retreated from four-week highs as oil eased back from 2014 peaks. Meanwhile, sinking global stocks boosted the safety appeal of the U.S. dollar whose rise was bolstered by upbeat jobs data Wednesday that suggested a somewhat higher risk of an upside surprise for nonfarm payrolls on Friday. As expected, the Reserve Bank of New Zealand raised interest rates to 0.50% from record lows of 0.25% and kept the door open to further inflation-fighting rate increases.


The buck had is overnight rally padded by signs of a strengthening U.S. job market. ADP reported that private employers added 568,000 jobs in September which easily topped forecasts of 428,000, and August’s revised gain of 340,000. The data introduced a higher risk of an upside surprise for nonfarm payrolls on Friday. The world’s biggest economy likely added around 473,000 jobs in September after August’s lackluster gain of 235,000.

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