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Currency Market Analysis

Nov 16, 2021 | Currency Market Analysis

Global Themes

How is the U.S. consumer holding up in the face of high inflation and the lowest morale in a decade? The answer arrives with today’s 8:30 a.m. ET release of retail sales. Ahead of the influential report on America’s main growth engine, the greenback held firm around 16-month peaks versus the euro, and not far from its highest in over a month against the Canadian dollar. Sterling bounced above 11-month lows as the lowest UK unemployment in over a year strengthened the case for the Bank of England to raise borrowing rates. The buck has been on a tear since hot inflation figures last week put Fed interest rate increases for next year more firmly on the table. How durable the dollar’s gains are may be gleaned from today’s consumer spending data. Brisk spending is on the cards with forecasts for retail sales to jump 1.4% in October.


Canada’s dollar slipped against its data-boosted U.S. counterpart. The greenback got a boost after data depicted a vibrant consumer ahead of the all-important holiday shopping season. U.S. retail sales jumped 1.7% in October, the fastest pace in months, compared to forecasts of a 1.4% increase. Oil prices, currently around $81, held below recent multi-year peaks, limiting fuel to sustain the commodity reliant loonie. 


The U.S. dollar hovered within reach of 16-month highs after bullish consumer data suggested the economy got off to a strong start to the fourth quarter. Retail sales soared by 1.7% in October, above forecasts of 1.4%, and the third increase in as many months. Consumers likely pulled forward holiday purchases given pandemic-crimped supply shortages. Evidence of stronger fourth quarter growth kept the 10-year Treasury yield above 1.60%, not far from recent peaks.


Another week, another floor has given way for the euro, as it tumbled to new July 2020 lows. The euro squeezed more juice out of its slide after remarks this week from the head of the ECB downplayed prospects for higher interest rates next year, a leading vulnerability for Europe’s shared currency. 


Lower than expected UK unemployment put a sturdier floor under sterling and moved Britain’s central bank a step closer to raising borrowing costs from historic lows. Britain’s jobless rate improved to 4.3% in the third quarter, the lowest since the summer of 2020, from 4.5% in the three months to August. The Bank of England has said the health of the job market holds the key to the interest rate outlook. Central bankers will get to parse one more jobs report, due Dec. 14, before their final rate meeting of the year on Dec. 16.

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