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Currency Market Analysis

Oct 08, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar meandered around one-year highs in the runup to this morning’s influential jobs report. The dollar consequently was little changed versus peers from Europe and Canada whose oil-driven gains kept the loonie near one-month highs. America’s already popular jobs report is coming under heightened scrutiny given that the Fed wants to see more labor market gains before dialing back on stimulus. U.S. hiring likely accelerated by a brisk 500,000 in September after employers added only 235,000 in August, the fewest in seven months. While stronger hiring is expected, it’s not assured, adding to markets’ increased anticipation. The dollar could enjoy a relief rally if solid hiring cements a Fed policy taper as soon as November. On the other hand, any disappointment could leave the dollar’s gains at risk as it could cloud the outlook for Fed policy and validate worries about slower third quarter growth.


While little changed, the euro was at risk of lengthening its four-week skid against the greenback. Europe’s beleaguered single currency carved out new July 2020 lows this week in the wake of dismal factory numbers from Germany that showed the extent to which activity has been hampered by widespread supply chain disruptions. A key European indicator to watch closely next week is Germany’s influential ZEW survey of investor morale, due Oct. 12, which is forecast to fall for a fifth consecutive month in October.  


The greenback fell after another disappointing U.S. employment report offered more uncertainty rather than clarity about the Fed’s plans to reduce stimulus. America netted only 194,000 jobs in September which fell far short of forecasts of 500,000. Strong upgrades to the previous months helped to reduce the sting as hiring proved stronger by a combined 169K jobs in July and August. Unemployment fell to 4.8%, a new pandemic low, but for the wrong reason as the size of the labor market declined.  For the dollar, faster wage growth could stave off deeper losses as it offers more evidence of price pressures lingering for longer which is supportive of the Fed tapering stimulus next month.


Canada’s dollar rolled to two-month peaks after domestic hiring proved stronger than expected, cementing expectations for Ottawa to resume tapering stimulus later this month. Canada added 157,100 jobs in September which was more than double forecasts of a gain of 65,000. Brisk hiring, coupled with an increase in the size of the workforce, pushed unemployment to a new pandemic low of 6.9%. The jobs report was a clear sign that Canada’s economy has rebounded after a surprise second quarter contraction.


The UK pound was on track for its first weekly advance in a bout a month, boosted by expectations for the Bank of England to fight inflation with an interest rate hike before its U.S. counterpart. It also helped sterling that Wall Street was on track for a winning week after a recent stretch of underperformance. Higher stocks signal increased investor appetite for risk correlated currencies like the pound. Britain’s interest rate debate will see some swaying next week by unemployment on Tuesday and monthly growth and factory output Wednesday.

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