Currency Market Analysis

Nov 22, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar steadied at elevated levels as a holiday-shortened but important week got underway. The euro stuck near 16-month lows against the greenback, a currency that was broadly steady versus counterparts from Britain and Canada. The dollar has rallied into year-end as the U.S. economy gains steam and Covid-19 related lockdowns across the pond dampen recovery prospects for the global economy. Ahead of the U.S. Thanksgiving holiday Thursday, the U.S. economy will release a slew of indictors Wednesday on durable goods, third quarter growth, consumer spending, and the Fed’s main barometer of inflation. President Biden, meanwhile, is expected to soon unveil his pick to lead the Fed over the next four years. A change to Fed Gov. Lael Brainard from Chair Jerome Powell could excite some market volatility as she is perceived as slightly more dovish.

EUR

A downtrodden euro stuck around early-2020 and mid-2020 lows against sterling and the greenback respectively, with its latest decline stoked by fears of the resurgent coronavirus complicating an already challenging outlook for the bloc’s economic recovery. Key European indicators to watch closely this week include business sentiment surveys Tuesday, and Germany’s all-important Ifo barometer of business confidence Wednesday that is forecast to moderate to 96.6 in November from 97.7 in October.

GBP

Sterling fared mixed Monday as it held near early 2020 highs against the euro but hovered less than a penny above 11-month lows against the buoyant greenback.  A trio of solid UK indicators last week on unemployment, inflation, and consumer spending put a floor under the pound by strengthening the case for the Bank of England to raise interest rates by year-end. Britain issues key manufacturing and services growth surveys Tuesday that if also solid would tend to be pound-positive and constructive for a December rate hike.

CAD

A little changed Canadian dollar favored seven-week lows against its U.S. peer. Oil also fell to seven-week lows around $75 as rising virus cases in the U.S. and Europe added to worries about weaker energy consumption. Already a significant driver of loonie sentiment, oil markets could matter even more for the loonie this week amid a dearth of major domestic data. Canada issues third quarter growth on Nov. 30. The economy likely bounced back after a surprise 1.1% contraction in Q2.


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