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Currency Market Analysis

Oct 18, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar started the week with a gain as worries about global growth buoyed safe havens. The dollar firmed against the euro, sterling and Canadian dollar, while it kept in close range of three-year highs versus the yen. The buck had its five-week rally snapped last week as outperforming stocks boosted risk assets at the expense of safer plays. But fresh signs Monday of moderating global growth supported the dollar as China’s economy slowed to a 4.9% annual rate in the third quarter, the weakest pace in a year, after it grew nearly 8% in the spring. The dollar also capitalized as Treasury yields jumped following better than expected news last week on the U.S. economy. Weekly jobless claimed cracked below 300,000, a fresh pandemic low, while consumers unexpectedly stepped up spending. The bullish data was consistent with the Fed moving as soon as next year to raise borrowing rates.

EUR

The euro was little changed Monday as it struggled to build on the previous week’s gain, a sign of still bearish underlying sentiment. Against sterling, the euro hovered around 20-month lows. The euro will look for direction this week from euro zone inflation data Wednesday, followed by preliminary PMI surveys from the bloc on Friday that will be a litmus test for the strength of the recovery. Forecasts suggest factory activity moderated further in October.

CAD

Canada’s dollar held near its strongest in three months versus the dollar as oil markets resumed their ascent. Oil above $83 marked a fresh seven-year top. The domestic economy this week holds the keys to the loonie’s coming prospects. Inflation is forecast to accelerate to 4.3% in September, above August’s 18-year high of 4.1%. Robust spending is on the cards for retail sales Friday which likely expanded some 2% in August after July’s contraction of 0.6%.

GBP

Sterling steadied near one-month highs against the greenback and its strongest in 20 months versus the euro. The pound is back in positive territory for the year against the dollar amid rising expectations for the Bank of England to raise rates to help slow the rapid rise in inflation. A Wednesday survey is forecast to show UK inflation held above 3% in September. High inflation would be supportive of the BOE raising rates before Christmas.


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