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Currency Market Analysis

Oct 15, 2021 | Currency Market Analysis

Global Themes

Another burst of strength against the yen helped the U.S. dollar stabilize after a bout of profit-taking knocked it to 10-day lows. The euro was on track for a weekly gain while sterling jumped to four-week peaks. Canada’s dollar rose to new three-month highs as oil extended its ascent to fresh seven-year peaks above $82. A subdued greenback was poised for its first decline in six weeks as its latest rally ran out of steam. A rebound in risk appetite, with global stocks higher, sapped demand for safe havens. U.S. Treasury yields kept below recent highs, another factor that dented the dollar’s allure. While the dollar has retreated this week, scope for a meaningful slide appears limited given growing expectations for the Fed to dial back on stimulus and raise borrowing rates next year. All eyes today are the on the economy-driving U.S. consumer with retail sales due at 8:30 a.m. ET.

GBP

The UK pound strengthened to four-week highs against its U.S. rival, thanks to growing expectations for the Bank of England to raise borrowing rates. Some forecast the British central bank could raise rates before year-end with inflation expected to accelerate. UK inflation will be in focus next week when consumer prices are released on Oct. 20. A rise from the current rate of 3.2% would galvanize rate hike expectations and buoy sterling.

CAD

Canada’s dollar jumped to three-month highs Friday as oil pushed to new 7-year peaks above $81. USD/CAD consequently was at risk of logging its fourth straight week of declines. Canada next week issues top tier data on inflation (Wednesday) and consumer spending (Friday), numbers that if solid would cement expectations for the Bank of Canada to taper its asset purchases on Oct. 27.

USD

The dollar pared declines after surprise news of a resilient consumer in the face of higher inflation. Retail sales unexpectedly jumped 0.7% in September, the second straight monthly advance, compared to forecasts of a mild contraction. Spending the previous month got revised higher. On balance, today’s consumer spending data bodes better for third quarter. Retail sales underscored consumers’ fortified balance sheets which keeps the economy on track for robust growth of around 6% for 2021.

EUR

The euro was on track to snap a five-week losing streak against the dollar, one that wasn’t assured, though, given bearish underlying sentiment toward the European currency. The euro benefited as the greenback’s surge to 15-month lows subsided as traders booked profit. Keeping the euro’s downtrend intact, however, were subpar data this week on German investor confidence and euro zone factory growth that contracted in August.


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