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Currency Market Analysis

Oct 11, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar held firm near one-year highs in holiday trade to begin an important week for the world’s biggest economy. While subdued versus the euro, sterling and Canadian dollar, the dollar enjoyed general strength thanks to outsized gains against the yen which plunged to December 2018 lows. The dollar lost ground Friday after mixed jobs data. Still, the greenback managed to eke out a weekly gain, its fifth in a row, as disappointing hiring didn’t meaningfully alter expectations for the Fed to reduce stimulus this year. The U.S. economy added just 194,000 jobs in September, the fewest since December, but unemployment declined to 18-month lows below 5%, and wage inflation accelerated. Treasury yields jumped to four-month highs above 1.60%, suggesting a near-certainty of the Fed announcing tapering plans next month. U.S. inflation Wednesday and retail spending Friday could cement the case for the Fed to start tapering.


Light holiday trading caused the loonie to drift below late July highs against the greenback, its strongest level in 10 weeks. Clear evidence of the Canadian economy accelerating after a spring setback, coupled with oil’s surge above $80, the highest in 7 years, continues to underpin the loonie. Canada added more than 157,000 jobs in September, a brisk amount that pushed unemployment to 18-month lows of 6.9%. Canada’s central bank next issues a decision on Oct. 27 when it is almost certain to taper stimulus.


Sterling got back in the win column last week where it remained Monday, a reflection of rising expectations for the Bank of England to fight inflation with an interest rate hike in the months ahead. The pound’s improved bias also came ahead of data this week that are forecast to show lower unemployment (4.5% for Aug. vs 4.6% in July) and faster growth (0.5% in Aug. compared to 0.1% in July). The firmer pound Monday neared two-week highs against its U.S. rival.  


The euro was anchored near recent lows against the greenback, given the risk that U.S. data this week could cement expectations for the Fed to dial back on stimulus ahead of its European counterpart. The euro also struggled to sustain gains ahead of German data Tuesday that’s forecast to show investor morale darkened for the fifth time in as many months. Germany’s ZEW survey Tuesday is forecast weakened to 24.0 in October from 26.5 in September.

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