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Currency Market Analysis

Nov 15, 2021 | Currency Market Analysis

Global Themes

The new week started with the greenback camped near highs for the year. The buck hovered just below 2021 peaks against the euro and sterling, while Canada’s dollar held above five-week lows. The dollar soared to more than 15-month highs last week after the hottest U.S. inflation in decades suggested the Fed may need to accelerate plans to roll back stimulus. What the dollar does for an encore this week is likely to hinge on the state of the U.S. consumer, the main driver of the world’s biggest economy. A resilient consumer is expected with retail sales on Tuesday forecast to rise for the third straight month in October. But it wouldn’t come as a complete shock if spending should unexpectedly disappoint after data last week showed consumer morale plunge to the lowest level in 10 years, undermined by skyrocketing inflation.


The loonie steadied thanks to a consolidating greenback, but underlying sentiment remained fragile, particularly with oil starting the week with a fall below $80, the lowest level in 10 days. An important week for the Canadian economy started in mixed fashion as manufacturing sales declined 3% in September, in line with forecasts, while wholesale trade jumped 1% for the same month. Next up: Inflation Wednesday that’s expected to accelerate 4.7% in October after it jumped 4.4% in September, the hottest in nearly two decades.


Downward pressure that drove sterling on Friday to December 2020 lows abated ahead of key domestic data this week had could help clear the fog about the outlook for UK central bank policy. Forecasts call for lower unemployment (4.4% vs 4.5%) on Tuesday, higher inflation (3.9% vs 3.1%) Wednesday, and a bounce back in retail spending (plus 0.5% vs minus 0.2%) Friday. Constructive prints would bolster the case for a UK rate hike as soon as policymakers’ final decision of the year on Dec. 16, a scenario that could put the pound on a firmer near-term path.


The euro was anchored around its lowest level in almost 16 months against the greenback. The head of the ECB speaks today, remarks that could reinforce Europe’s more dovish outlook for monetary policy than the Fed. The euro also will look for cues this week from euro zone third quarter growth Tuesday and inflation Wednesday that’s expected to confirm prices exceeded 4% last month, more than double the ECB’s 2% goal.

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