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Currency Market Analysis

Oct 25, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar snapped back from one-month lows as a risk-laden week got under way. The buck was mixed but mostly firmer with gains versus the euro, yen and sterling. Commodity prices continuing their roll buoyed the Canadian and Australian dollars. The euro led major currencies lower after downbeat European data suggested the ECB this week would maintain its dovish policy stance. German business confidence deteriorated to six months in October. The coming week is chock-full of major event risks that could help guide currencies over the coming weeks. The U.S. issues third quarter growth Thursday, followed by GDP reports from Europe and Canada Friday. Meanwhile, the next 10 days will see central banks from Canada, Europe and the U.S. issue policy decisions. U.S. Treasury yields ticked higher, supporting the greenback, while oil notched another 7-year top above $84.


Fresh highs for oil underpinned Canada’s commodity-influenced dollar but movements were restrained ahead of a midweek policy announcement from the country’s central bank. The Bank of Canada Wednesday is expected to reduce its weekly asset purchase program that aims to anchor borrowing rates to C$1 billion from C$2 billion, and with the economy’s cooperation retire the program as soon as the end of the year. Key for the loonie will be whether Ottawa meaningfully upgrades its inflation outlook with prices running at 4.4%, the hottest in 18 years, and pulls forward rate hike expectations from the second half of 2022.


The euro wilted into the new week as a bigger than expected decline in German business optimism reinforced the ECB’s dovish bias. Germany’s Ifo survey fell more than a point to 97.7 in October, the weakest in six months. Supply chain bottlenecks were credited with slowing the recovery in the bloc’s largest economy. The ECB issues a policy statement Thursday when it’s not expected to flag any coming policy changes. A report on euro zone inflation Friday is forecast to accelerate from 3.4%. Still, core inflation is projected to remain below the central bank’s 2% goal.


Sterling wavered from one-month highs as evidence of a cautious British consumer suggested a lower risk of an imminent rise in area borrowing rates. High inflation has strengthened the case for the Bank of England to lift interest rates from historic lows of 0.10% by year-end. Yet consumer spending on a months-long decline suggests very limited scope for central bankers to boost lending rates. A lack of major UK economic data this week will likely see the pound takes its main cues from global risk sentiment.

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