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Currency Market Analysis

Oct 22, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar was poised for a second straight week of underperformance as it largely fell prey to resurgent stocks. The mostly softer buck Friday favored its back foot against the euro, yen and Canadian dollar. Risk appetite returned this week with Wall Street at or near all-time highs. Improved risk sentiment weighed on the dollar and other safe havens. Still, the dollar’s retreat from recent one-year highs has been fairly muted with moves to the downside limited by rising Treasury yields. The 10-year yield was within a few basis points of 1.70%, the highest level five months. Higher yields reflect optimism in the outlook for the U.S. economy after weekly jobless claims fell to fresh pandemic lows below 300,000.

CAD

Canada’s dollar was on track for a fifth weekly rise in a row against the greenback as buoyant oil offset mixed news on the nation’s consumer. Canadian retail sales rose by a brisk 2.1% pace in August, slightly above forecasts. But the pattern of uneven consumption, in the face of a rising cost of living with inflation at 18-year highs of 4.4%, looks poised to continue. Canada’s stats bureau forecast September retail sales would fall by 1.9%. Oil Friday topped $83 after losing ground the day before.

GBP

Sterling moderated slightly from one-month highs as area data Friday stopped short of cementing an imminent increase in UK interest rates. British retail spending unexpectedly contracted again in September when sales fell 0.2% versus forecasts of a 0.5% increase. The data offered evidence of stubbornly high inflation putting a headwind on household spending. Other data today were pound-supportive, as British factory and services growth enjoyed surprise acceleration in October. Today’s data on balance are consistent with the Bank of England raising rates as soon as December rather than its next gathering on Nov. 4.

EUR

The euro was little changed Friday and on track for a second straight weekly gain against the greenback. The euro found support from area data Friday that showed German and euro zone factory growth moderated less than expected in October. Underlying euro sentiment hasn’t meaningfully brightened due to the ECB’s more dovish outlook for monetary policy compared to Britain and the U.S. The ECB is in focus with its next policy update on Oct. 28. A day after the ECB, Germany and the euro zone issue their initial estimates of Q3 growth.


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