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Currency Market Analysis

Nov 01, 2021 | Currency Market Analysis

Global Themes

Caution ahead of a quartet of central bank meetings this week tapped a brake on the U.S. dollar’s overnight rise to two-week peaks. The buck hovered around two-week highs against the euro and sterling, while Canada’s dollar rebounded after a late week slide. The yen weakened toward recent four-year lows against its U.S. counterpart. In addition to the Fed’s midweek policy announcement, central banks in Australia, Britain, and Norway also will release rate decisions. After U.S. inflation soared at a 4.4% annual rate in September, the fastest pace since 1991, the Fed Wednesday is widely expected to announce it will taper its $120 billion a month bond buying program. Stubbornly high inflation suggests a rising risk of the Fed raising interest rates more than once next year. Key to the rate outlook will be America’s October employment report Friday that’s forecast to show hiring accelerated by 450,000 after September’s lackluster gain of 194,000.

CAD

Canada’s dollar recovered from a Friday spill that erased some of its biggest monthly gains in almost a year. The loonie fell last week after disappointing domestic growth data poured cold water over prospects for the Bank of Canada to raise interest rates as soon as the spring. Nevertheless, the loonie logged its first monthly gain in five months in October with its 2.3% pace of appreciation its strongest since November 2020. Forecasts for Canada’s October employment report Friday call for hiring to decelerate to a gain of 50,000 after September’s increase of more than 150,000, a still solid amount that’s expected to lower unemployment to 6.8% from 6.9%.

EUR

Caution ahead of a quartet of central bank meetings this week tapped a brake on the U.S. dollar’s overnight rise to two-week peaks. The buck hovered around two-week highs against the euro and sterling, while Canada’s dollar rebounded after a late week slide. The yen weakened toward recent four-year lows against its U.S. counterpart. In addition to the Fed’s midweek policy announcement, central banks in Australia, Britain, and Norway also will release rate decisions. After U.S. inflation soared at a 4.4% annual rate in September, the fastest pace since 1991, the Fed Wednesday is widely expected to announce it will taper its $120 billion a month bond buying program. Stubbornly high inflation suggests a rising risk of the Fed raising interest rates more than once next year. Key to the rate outlook will be America’s October employment report Friday that’s forecast to show hiring accelerated by 450,000 after September’s lackluster gain of 194,000.

GBP

Sterling fell to two-week lows against the U.S. dollar, a sign of market doubts in the Bank of England raising interest rates as soon as this week with the UK economy still not out of the woods. The pound appreciated by two cents, or 1.6%, against the greenback in October but wilted into the finish line. A surprise rate hike Thursday or a hawkish hold in which policymakers drop strong signals of a possible rate hike in mid-December would suggest limited room to the downside for sterling.


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