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Currency Market Analysis

Oct 21, 2021 | Currency Market Analysis

Global Themes

It was new three-week lows overnight for the dollar but the U.S. unit steadied ahead of fresh news on America’s job market. The euro and sterling inched below three-week and one-month peaks, respectively, while the Canadian dollar pared gains after rallying to late June highs. Broader markets pulled back, boosting safe havens and signaling weaker risk appetite, an environment that’s greenback-supportive. The dollar has lost some luster as the outlook for global interest rates casts other central banks in a rosier light than the Fed. While the Fed appears on track to raise borrowing rates next year, New Zealand has already moved with Britain seen as next in line. The dollar’s decline has been mild so far thanks to elevated Treasury yields with the 10-year notching five-month highs above 1.66%. U.S. weekly jobless claims today are forecast to edge up from pandemic lows below 300,000.


Sterling’s pop to one-month highs receded as global markets took a breather. The pound hit December lows in September but has since been on the offensive as elevated UK inflation above 3% has fanned rate hike euphoria. The market sees scope for the Bank of England to raise interest rates from 0.10% as soon as its next decision on Nov. 3, when London will release new economic forecasts, or its final statement of the year on Dec. 16.


The euro’s recovery from 2021 lows slowed Thursday as investor appetite for risk abated. Debt default worries are on the rise again over China’s embattled property builder Evergrande, weighing on markets. While the euro has capitalized on the greenback’s retreat, European data Friday should offer a better sense about whether underlying sentiment has meaningfully brightened. Europe issues October data on factory and services growth with moderation generally in the cards.


The U.S. dollar kept off its overnight lows following mostly constructive news on the world’s biggest economy. Weekly jobless claims unexpectedly improved with the latest tally holding below 300,000 for a second straight week. Jobless claims improved by 6,000 to 290,000, the lowest level in 19 months. The Philly Fed index moderated more than expected to 23.8 in October but the subcomponents on employment, inflation and orders all strengthened.


The Canadian dollar was little changed, keeping it near the late June highs it reached overnight. The loonie has strengthened anew this week as the hottest domestic inflation in 18 years (4.4%) suggests a near certainty of the Bank of Canada next week cutting back on its bond buying program, seen as a step toward eventually raising interest rates from record lows of 0.25%. Key for the loonie will be whether Ottawa on Oct. 27 upgrades its economic outlook and pulls forward expectations of higher borrowing rates.

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