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Currency Market Analysis

Oct 29, 2021 | Currency Market Analysis

Global Themes

America’s greenback on Friday stabilized off one-month lows in data-driven trade. The mostly stronger U.S. dollar rebounded from one-month lows against the euro while it was little changed versus sterling and the loonie. The euro slipped anew as the dust settled from an ECB meeting that a day earlier saw the single currency rally to late September highs. The ECB largely met markets’ dovish expectations while it also kept intact the view that the 19-country central bank could be among the last G7 central banks to abandon rock-bottom interest rates. Europe’s rate debate remains a fluid one after data Friday showed euro area inflation soared more than 4% in October while third quarter growth accelerated slightly. The market spotlight now shifts to the left side of the Atlantic with U.S. data on the consumer and inflation, and monthly growth from Canada.


The U.S. dollar pushed to session highs after constructive data offered some underpinning. Consumer spending fared better than expected, rising 0.6% in September which followed an upgraded 1% gain in August. Personal income disappointed but not enough to alter the still bullish outlook for consumption as the labor market shows signs of strengthening. The Fed’s main gauge of inflation steadied at a high 3.6%, cementing expectations for the central bank to embark on policy tapering as soon as next month.


The euro faded another rally as it fell from one-month highs as the dust settled from the ECB’s policy update. The euro had strengthened Thursday after the ECB played up a strong economy and downplayed high inflation, keeping expectations intact that Frankfurt would lag its developed counterparts in normalizing interest rates. The market remains a bit wary in the ECB’s stance that inflation should eventually fade on its own next year. Downside for the euro could prove somewhat limited after euro zone inflation soared 4.1% in October, the highest since July 2008, and third quarter growth accelerated a tick to 2.2% from 2.1% in the second quarter.


Canada’s dollar fell Friday and was on track for a weekly decline as domestic growth disappointed and oil prices moderated from multi-year highs. Canada’s economy staged a weaker than expected bounce back in August when it expanded 0.4%, below forecasts of a 0.7% rise, and followed a small contraction in July. Looking ahead, Canada’s stats bureau forecast flat growth for September and very tepid third quarter growth of 1.9% on an annualized basis. The economy’s uneven recovery from the pandemic dampened prospects for the Bank of Canada raising rates as soon as the spring.

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