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Currency Market Analysis

Nov 19, 2021 | Currency Market Analysis

Global Themes

Weaker global markets helped the U.S. dollar get back on track and revisit 16-month highs. Leading major currencies lower, the euro plunged 1% to 16-month lows as Europe announced new lockdown measures in a bid to slow resurgent Covid-19 cases. With markets in risk-off mode, sterling tumbled along with the Canadian dollar. Austria said it would reimpose national lockdowns starting next week, while Germany adopted a partial lockdown. Renewed lockdowns are casting a pall over global recovery prospects and boosting currencies seen as safe bets like the U.S. dollar and yen. The buck, meanwhile, is enjoying multidimensional appeal as signs of a strengthening U.S. economy have markets anticipating earlier interest rate rises from the Federal Reserve. Canada could add to the weaker market mood if today’s report on retail sales contracts sharply as expected.


The euro tumbled to fresh 16-month lows as Europe resorted to new lockdown measures in a bid to contain resurgent Covid-19 cases. New lockdowns threaten to spell a longer period of economic uncertainty. Adding to deteriorating euro sentiment, the ECB pledged not to raise borrowing rates prematurely, as higher-rate policy could destabilize its vulnerable economic recovery from the pandemic.


British retail sales rose but sterling fell toward 11-month lows against the greenback as markets turned risk averse over rising Covid-19 cases. Retail spending jumped 0.8% in October, above forecasts of a 0.5%, which followed a flat reading in September. Renewed consumer spending, coupled with the lower unemployment and the highest inflation in a decade, suggests an increased likelihood of the Bank of England raising interest rates next month.


The loonie sank to seven-week lows as oil crated 3% to $76, and market players ducked for cover in the safer greenback amid renewed worries about resurgent Covid-19 cases. However, Canada’s dollar pared its decline after better than expected news on the consumer. Canadian retail sales fell 0.6% in September but that was less than half the expected decline of 1.7%. Canada forecast a rosy outlook for October retail sales which it sees up 1%, a bullish signal for fourth quarter growth.  

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