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Currency Market Analysis

Nov 18, 2021 | Currency Market Analysis

Global Themes

After a dominant week of gains, the U.S. dollar moderated from 16-month highs. That allowed the beleaguered euro to recover from July 2020 lows. Elsewhere, currencies from Britain and Canada were little changed with the latter favoring six-week lows. The buck has spent the past week rolling to successive highs for the year against a basket of rivals, as signs of an accelerating U.S. economy suggest the Fed may need to adopt a faster pace of policy normalization. Following stronger than expected inflation and consumer spending data, attention today turns to America’s tightening job market. Weekly jobless claims are forecast to improve to new pandemic lows of 260,000 from 267,000 the prior week. While dollar bulls hold the upper hand, a continued run to new highs may hinge on the Fed aligning with markets’ more hawkish outlook for interest rates


More evidence of a strengthening U.S. economy should help to limit dollar pullbacks from 16-month highs. Weekly jobless claims inched down to fresh pandemic lows of 268,000 from a revised 269,000 last time. The Philly Fed index of Mid-Atlantic business conditions surprised to the upside with a print of 39 for November, a multimonth high above forecasts of 24. Today’s data add to signs of stronger fourth quarter growth, a key ingredient of the dollar’s recent outperformance.


Three days of data-fueled gains lifted sterling into positive territory for the week. The pound hovered near one-week highs after lower unemployment and the hottest inflation in nearly a decade bolstered prospects for the Bank of England to raise interest rates next month. Sterling appears to be consolidating its advance ahead of another data test Friday when Britain publishes retail sales which are forecast to snap a multimonth skid with a 0.5% rise in October.  


The euro formed a tentative bottom that allowed it to recover from 16-month lows. Underlying sentiment toward the euro remains bearish, suggesting bouts of strength may prove relatively short-lived. Nevertheless, the euro’s rapid decline of 3% over the last three months, and 7% over the previous six months could leave it ripe for a short squeeze rally in which a positive catalyst could spark a stampede of euro bears to run for the exit, squeezing the euro higher.


An oil-inspired decline drove the loonie to six-week lows against its U.S. rival. Pushback from the Biden administration over high gas prices, particularly ahead of the holidays when many Americans hit the road, knocked the price of oil as low as $77, the lowest in six weeks. The loonie remained on wobbly ground ahead of Canadian retail sales Friday that are forecast to fall 1.7% in September after August’s increase of more than 2%.

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