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Currency Market Analysis

Nov 10, 2021 | Currency Market Analysis

Global Themes

Caution reigned across markets Wednesday ahead of fresh snapshots on the Fed’s main economic areas of concern: Inflation and the job market. A broadly firmer greenback rose toward multiweek peaks versus sterling and the Canadian dollar, and flirted with highs for the year against the euro. Ahead of the U.S. federal holiday Thursday for Veterans Day, the government today releases key data on consumer prices and weekly jobless claims. Annual headline inflation is forecast to accelerate at a blistering pace of 5.8% in October, the hottest since 1990, from already 13-year highs of 5.4%. Initial jobless claims are expected to tick down to new pandemic lows of 265,000. Higher inflation and a strengthening job market would tend to be dollar-positive, while any surprise softening in either reports would tend to anchor Treasury yields and slow the buck’s advance.


The euro neared recent July 2020 lows against the greenback ahead of twin looks at the health of America’s economic recovery from the coronavirus pandemic. Bouts of euro strength have proven short-lived on expectations for the ECB to trail is main counterparts to normalizing monetary policy. Still, downward pressure on the euro may have eased after the German economy this week showed tentative signs of stabilizing. Germany’s influential ZEW index of investor confidence unexpectedly brightened and for the first time in six months in November.


The U.S. dollar ascended to session highs after hotter inflation and fewer jobless claims threatened to pull forward the timeframe for the Fed to raise interest rates. The 6.2% jump in annual consumer prices was the hottest since 1990, and above forecasts of 5.8%. Core inflation rose 4.6%, the highest since 1991, and more than double the Fed’s average inflation goal of 2%. Weekly jobless claims improved to new pandemic lows of 267,000, the sixth decline in as many weeks. Such a red hot rate of inflation could lead the Fed to accelerate plans to wind down its bond buying program and raises rate by mid-2022.  


Sterling fell toward five-week lows as cautious market sentiment whet demand for safe bets like the greenback. A big day looms Thursday for the pound when Britain issues key growth data that could shed light on the near-term outlook for central bank policy. The UK economy likely decelerated to a 1.5% pace during the third quarter, compared to the spring when it advanced more than 5%. Slower growth would increase already high uncertainty about whether London will raise rates in December.


Canada’s dollar rebounded from four-week lows after the price of oil neared recent seven-year peaks above $84. A light week of local economic data has put a heightened focus on energy prices for the loonie’s main steer. Oil markets and U.S. numbers on inflation and the job market will help dictate how the loonie fares over the balance of holiday-shortened week.  

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