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Currency Market Analysis

Nov 12, 2021 | Currency Market Analysis

Global Themes

Fresh gains Friday had the U.S. dollar on track for its best weekly performance in months. The broadly in vogue greenback notched new peaks for the year versus the euro and sterling, and climbed to five-week highs against the Canadian dollar. The buck has been on a significant roll since U.S. inflation data this week showed the highest cost of living in decades. Consumer prices jumped more than 6% last month and have run above 5% for five straight months. Inflation showing few signs of peaking led markets to question the Fed’s view that higher inflation should prove temporary. The dollar may be in the early stages of an uptrend if higher inflation should prompt the Fed to retire its bond buying program and raise interest rates ahead of current market expectations. A 10 a.m. ET report is forecast to show a slight brightening in U.S. consumer sentiment in early November.


Weak data added traction to the euro’s decline as it fell to July 2020 lows for a third day in a row. Euro zone factory output contracted again in September, adding to recent signs that area growth has lost momentum. A weaker economic backdrop, meanwhile, only reinforces the ECB’s dovish policy stance which contrasts the Fed’s more hawkish bias, a key headwind on the single currency. For the week, EUR/USD was on track to shed more than a cent, or 1%, while for the year the pair is down more than 6%.


The Canadian dollar slid to 5-week lows as the greenback sustained gains and oil held barely above $80, the lowest level in a week. The loonie encountered renewed volatility this week as the U.S. dollar index broke out of its range, and oil slipped from recent multi-year peaks. Canadian fundamentals will be on display next week with top-tier numbers on inflation Wednesday and retail sales Friday. The loonie could strengthen if inflation rises from already 18-year highs above 4%, a hotter print that would bolster expectations for a Bank of Canada rate hike as soon as the spring.


New lows for sterling Friday pushed GBP/USD to its weakest level in nearly 11 months. The pound encountered formidable headwinds this week in a stronger U.S. dollar and weaker UK growth with the former tempering expectations for the Bank of England to raise interest rates. A daunting week ahead for all things UK economics could see the pound sink or swim. Britain releases unemployment data Tuesday, inflation Wednesday, and retail spending on Friday. The BOE said it’s paying particularly close attention to the job market after the government ended a salary support program in September.

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