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Currency Market Analysis

Nov 09, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied around highs for the year ahead of key data that could shape expectations for Fed lending rates. The buck was flat to firmer versus the euro, sterling and Canadian dollar. Markets are bracing for U.S. consumer inflation data Wednesday that’s forecast to accelerate from already 13-year highs. The dollar’s hold on recent gains, though, has been a bit slippery as the Fed has maintained that high inflation should start to abate next year. Moreover, the Fed’s patient stance with respect to raising interest rates also has slowed the dollar’s upward mobility. Forecasts suggest that both headline and core consumer prices rose at a faster clip in October, a scenario that if realized would bolster conviction in the Fed hiking interest rates next year. 


A surprise brightening in German confidence data helped the euro hold above 2021 lows against the greenback. Germany’s ZEW survey of investor confidence unexpectedly brightened to 31.2 in November from 22.3 in October which marked the first improvement in six months. Forecasts had called for the key gauge of investor morale to dim to 20. The surprise improvement was a hopeful sign that growth could be on a better trajectory in the months ahead. 


The dollar kept in positive territory after U.S. wholesale inflation continued to run hot last month. The producer price index jumped at an annual rate of 8.6% for the second straight month in October. Next up: consumer prices Wednesday that are expected to climb from 13-year highs of 5.4%. High inflation has the market anticipating dollar-positive rate hikes from the Fed next year.


Canada’s dollar continued to favor three-week lows against its U.S. rival amid a lack of domestic data this week to offer a steer. Firmer oil above $82 translated into underlying support for the Canadian unit. The next major look at the Canadian economy arrives with a Nov. 17 report on consumer prices which are currently running at 18-year highs above 4%.


A little changed UK pound hovered about a cent above five-week lows. Sterling continued to stabilized after a central bank-inspired skid last week when it shed 1.4% for its worst weekly performance since August. The pound has found a bottom for now amid elevated expectations for the Bank of England to raise rates by year-end. Still, uncertainty is also elevated about whether the central bank will move following its surprise inaction last week.

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