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Currency Market Analysis

Nov 05, 2021 | Currency Market Analysis

Global Themes

A buoyant greenback flirted with highs for the year ahead of the month’s most important look at America’s labor market. Broad based U.S. currency strength pushed the euro, sterling and Canadian dollar to multiweek lows. Sterling continued to suffer after the Bank of England’s surprise inaction on interest rates. The UK pound sat two cents below pre-BOE levels, while its Thursday swoon marked its sharpest one-day rout in over 1 ½ years. Markets now turn to the U.S. October jobs report for the next clue on the outlook for Fed policy. Hiring likely accelerated by around 450,000 jobs last month, above the monthly average of 280,000 in August and September. The expectation of stronger job growth likely nudged unemployment down a tick to 4.7%. A positive jobs report could be the dollar’s ticket to new highs for the year as it would strengthen the case for the Fed to raise rates next year.


Canada’s dollar steadied around three-week lows as firmer oil helped to offset underwhelming domestic jobs data. Canadian hiring slowed more than expected to a gain of 31,200 jobs in October, while unemployment improved to pandemic lows of 6.7%. Softer than expected hiring bolsters the view that third quarter growth may stop short of the Bank of Canada’s forecast of a 5.5% annual rate. Oil rose but kept below $80.


The greenback’s outperformance against Europe knocked the euro to mid-October levels, where lows for the year reside. Disappointing domestic data added traction to the euro’s weaker bias as German factory output and euro zone retail sales both contracted unexpectedly, more evidence of the economic recovery losing momentum. Looking ahead, Germany’s influential ZEW survey of investor confidence looms on Nov. 9, and is forecast to deteriorate for a sixth consecutive month in November.


The UK pound added to its central bank-induced plunge as it slipped to five-week lows. The pound collapsed around 1.5% Thursday, its worst single day performance in over 18 months, after the Bank of England surprised the majority of the market that had bet on a rate hike to 0.25% from 0.1%. A few weeks ago, top central bankers had warned of the need to raise rates to help slow the rapid rise in inflation which is seen on a collision course with 5% over the months ahead.


Faster than expected U.S. hiring last month proved the dollar’s ticket to fresh highs for the year. America added a robust 531,000 jobs in October which topped forecasts of 450,000. Hiring in August and September got upgraded by a combined 235,000. Unemployment improved to a new pandemic low of 4.6%, but not necessarily for the right reason as the size of the workforce steadied at 61.6%. The overall strong snapshot of the job market last month will keep higher U.S. interest rates in the conversion, a dollar-positive topic.

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