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Currency Market Analysis

Oct 07, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar eased off highs for the year as the market mood brightened on hopes that Washington may soon find a short-term solution to raise the nation’s debt limit. The softer buck offered some breathing room for the euro and sterling, rivals that recently hit 2021 lows. Canada’s dollar kept buoyant despite oil holding below 2014 highs near $80. Demand for safety in the greenback ebbed on signs that Washington may find a temporary fix to raise the nation’s borrowing cap. Failure to raise the country’s credit limit by Oct. 18 could unleash global economic havoc. The dollar otherwise was well supported on the eve of America’s September jobs report. With the bar perceived as low for the Fed to soon taper stimulus, a jobs print of no worse than August’s dud of 235,000 might be enough to green light an imminent reduction in stimulus. The latest forecasts suggest the U.S. added 500,000 jobs last month.


Sterling firmed as it benefited from improved risk sentiment on hopes that Washington would avoid a market-rocking debt default. U.S. stock futures were signaling a profitable day, after indices turned around and ended higher Wednesday. A dearth of UK data this week has led the pound to take its main cues from broader market drivers. Sterling remained stronger for the week, a gain that may hinge on the strength of America’s jobs report Friday.


The U.S. dollar trimmed overnight declines after the job market delivered reassuring news on the eve of nonfarm payrolls. Weekly jobless claims improved more than expected to 326,000 in the latest period, below forecasts of 348,000, and the first improvement in four weeks. The claims data fell outside the survey period for nonfarm payrolls. Still, the data was consistent with the labor market gaining steam early in the fourth quarter, keeping the Fed on track to taper stimulus this year.


The euro moved its chin just above July 2020 lows as market sentiment improved, cooling demand for the safer greenback. But the euro had its recent slide validated by more dismal data from Europe’s largest economy. German industrial output plunged 4% in August which came on the heels of a Wednesday survey that showed industrial orders tanked nearly 8%. The euro is seen at heightened risk of testing fresh lows if America’s jobs report Friday cements an imminent reduction in Fed stimulus.


The loonie moved to within arm’s reach of four-week highs against the dollar with upside slowed by oil coming off a boil. Oil slipped to $76 from Tuesday’s close of $78, the highest since 2014. The loonie is likely to stick to recent ranges ahead of domestic jobs data Friday that will shed light on whether the economy is staging a second half rebound. Forecasts suggest Canada netted 65,000 jobs in September, a solid amount seen lowering unemployment to fresh pandemic lows of 6.9%.

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