Currency Market Analysis

Jan 07, 2022 | Currency Market Analysis

Global Themes

The greenback and its top peers were momentarily calm ahead of an important look at the health of the world’s biggest economy. The U.S. unit was on track for its first weekly gain in three weeks ahead of data that’s forecast to show hiring accelerated last month. Ahead of the 8:30 a.m. ET release of the December jobs report, the dollar alternated between small gains and losses against the euro, sterling and Canadian dollar. Forecasts suggest hiring accelerated by 400,000 last month, as the tally was collected before the big late month spike in the Omicron variant of the coronavirus. A strong print would validate forecasts of the Fed raising rates as soon as March, a scenario seen as dollar positive. The loonie and other oil currencies were buoyed by instability in oil-producer Kazakhstan. Slower hiring and steady unemployment are in the cards for Canada’s jobs report today.


Canada’s dollar rose after better than expected hiring north of the border kept the Bank of Canada on track to raise interest rates early this year. Canada added 54,700 jobs in December which was roughly twice as strong as forecasts of a gain of 27,500. Brisk hiring, which came entirely from the more important full-time jobs, nudged unemployment to new pandemic lows of 5.9%. The door is seen as wide open for the BOC to raise rates as soon as its Jan. 26 gathering.


The U.S. dollar was mostly steady following a mixed snapshot of America’s job market at the end 2021. The U.S. economy added a disappointing 199,000 jobs in December which compared to forecasts of a gain of 400,000. That marked a second straight month of subpar hiring. Yet while tepid, hiring last month was strong enough to lower unemployment to fresh pandemic lows of 3.9%. Consequently, March is still considered a live meeting for the Fed to raise interest rates.


Sterling was on track for a narrow weekly gain against the greenback ahead of the release of America’s monthly jobs report. The pound caught a bounce this week as the government said it wouldn’t resort to new restrictions to tackle the Omicron variant which bodes better for the economy and kept the door open for the Bank of England to raise interest rates next month.


The euro seesawed around a key threshold against the greenback with downside checked by record hot inflation across the 19-nation euro zone. Europe’s inflation problem intensified in record fashion last month when consumer prices jumped 5%, versus forecasts to slow to 4.7% from the previous record of 4.9% in November. High inflation can be positive for a currency as it suggests a country’s central bank may need to lift interest rates. Yet the ECB is of the firm belief that inflation should recede in the months ahead, a scenario that, if correct, would allow it to maintain ultra-low borrowing rates to bolster the recovery.

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