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Currency Market Analysis

Nov 04, 2021 | Currency Market Analysis

Global Themes

Central banks are keeping the FX market in motion as sterling plunged to one-month lows after the Bank of England left interest rates unchanged. The pound’s wobble helped the greenback recover from a Fed-induced fall the previous day. Elsewhere, the euro weakened toward 2021 lows, while Canada’s dollar favored a three-week bottom against its southern neighbor. Britain’s central bank voted 7-2 to keep borrowing rates at record lows of 0.10%. Market odds had narrowly favored a rate increase to 0.25% this week to help slow the rapid rise in UK inflation. The greenback slipped Wednesday after the Fed committed to tapering its $120 billion a month bond buying program with the finish line penciled in for mid-2022. Focus now shifts to U.S. jobs data with initial claims today forecast to improve to fresh pandemic lows below 300,000. Friday heralds America’s October employment report with faster hiring in the cards.

CAD

The Canadian dollar kept in close range of the previous day’s three-week low as it lost ground to a broadly stronger greenback. The loonie’s fall was slowed a bit by recovery-friendly data and stronger oil above $82. Boding better for third quarter growth, Canada logged a bigger than expected trade surplus of C$1.86 billion in September as exports outpaced imports. Canada’s October jobs report Friday will offer the next clues on the strength of the recovery. Forecasts suggest unemployment will improve a tick to fresh pandemic lows of 6.8%.

EUR

The euro fell toward 2021 lows against the U.S. dollar after data depicted a feeble recovery in the bloc’s biggest economy. German factory orders rose by an underwhelming 1.3% in September which followed a big 8.8% plunge in August. Persistent economic malaise in a core European economy plays up policy divergence between a stimulus tapering Fed and an ECB that has played down prospects for higher lending rates next year.

USD

The U.S. dollar rallied anew a day after the Fed raised the curtain on policy tapering and data pointed to a strengthening American job market, seen as a prerequisite for the Fed to raise rates next year. Weekly jobless claims improved to new pandemic lows of 269,000 in the latest period, a print better than forecasts of 275,000. The latest claims data improved for the fifth week in a row, which bodes well for Friday’s nonfarm payrolls report to show faster hiring. Forecasts suggest America netted 450,000 jobs in October after September’s dud of 194K.

GBP

Sterling plunged 1% to four-week lows against its U.S. rival after the Bank of England wrongfooted many with its decision to keep interest rates steady at record lows of 0.10%. UK central bankers voted 7-2 to keep rates unchanged, which tilted dovish. The BOE could still become the first among the major G7 central banks to raise rates as it said that rates could rise “over coming months” if the recovery plays out as it expects. GBP/USD’s latest slide pushed it deeper into negative territory for the year, good news for GBP buyers.


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