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Currency Market Analysis

Nov 17, 2021 | Currency Market Analysis

Global Themes

The greenback steadied after an overnight surge to 16-month highs. Sterling led major currencies higher after the fastest UK inflation in nearly a decade all but cemented the case for higher interest rates. The euro plumbed a new 16-month low, while Canada’s dollar steadied ahead of fresh inflation figures. Mounting signs of a revving U.S. economy have the dollar on a roll. An improving job market, a resilient consumer, and high inflation are making a compelling case for the Fed to bring forward plans to raise rates. The UK pound climbed to one-week highs against the greenback after area inflation topped 4% in October, the highest rate in nearly 10 years. Canada issues inflation data today that’s forecast to accelerate from 4.4% in September, already the fastest pace in nearly two decades.


Sterling rose a penny above 11-month lows thanks to the fastest UK inflation in nearly a decade. British consumer prices rose at a 4.2% annual rate in October which exceeded forecasts of 3.9% after prices surged 3.1% in September. Hotter inflation came on the heels of the lowest unemployment (4.3%) since mid-2020. Taken together, this week’s data suggested an increased likelihood that the Bank of England would raises rates to 0.2% from 0.1% in mid-December. But higher borrowing rates so close to Christmas would be a grinch move which is keeping uncertainty high and sterling vulnerable.


The euro’s slide to successive 16-month lows showed few signs of abating. The euro tumbled through another key floor overnight when it skid to a new July 2020 low. Euro sentiment continues to deteriorate as virus cases climb anew in Europe and cloud recovery prospects. Meanwhile, rising expectations for the U.S. to raise rates as soon as mid-2022 stand in contrast to pledges by the ECB not to change course from low rate policy next year.  


The loonie favored the lower end of its range against the greenback after area inflation was largely in line with expectations and didn’t impact the outlook for Canadian interest rates. Total inflation accelerated at a 4.7% annual rate in October, the highest since February 2003, in line with forecasts. A gauge of core inflation steadied at 1.8% versus forecasts of a modest increase. The data reinforced the view that a rate hike as soon as the spring might be premature, a less hawkish outlook that may not offer much support for the loonie.

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