Currency Market Analysis

Jan 10, 2022 | Currency Market Analysis

Global Themes

The U.S. dollar rebounded after falling overnight to one- and two-month lows against rivals from Canada and Britain. The buck firmed against most of its main peers ahead of midweek U.S. inflation data that could smooth the path for the Federal Reserve to raise interest rates by March. The greenback struggled last week after data showed the world’s biggest economy added less than 200,000 jobs in December, the slowest pace in a year. Still, another survey Friday showed that U.S. unemployment fell below 4%, the lowest level in 22 months, and not far from half-century lows. The big number to watch this week is U.S. December consumer inflation Wednesday that’s forecast to accelerate at an annual rate of 7% from already multi-decade highs of 6.8%. U.S. retail sales loom Friday. U.S. interest rate jitters weighed on stock sentiment, while the 10-year Treasury yield touched two-year highs of 1.80%.


A broadly weaker euro slipped against the firmer greenback and fell to February 2020 lows against the UK pound. Expectations that the ECB would lag far behind both its U.S. and British counterparts in normalizing monetary policy continue to undercut bouts of euro buoyancy. As expected, euro zone unemployment fell to a still-elevated 7.2% in November from 7.3% in October. 


Sterling fared choppy Monday as it eased off two-month highs against the dollar but flirted with two-year peaks against the euro. UK data this week will be weighed against expectations for the Bank of England to raise borrowing rates from 0.25% as soon as February. A Friday survey is forecast to show growth accelerated 0.4% in November after lackluster growth of 0.1% in October.


Canada’s dollar pared gains after it bounced overnight to one-month highs against the greenback. The loonie nearly erased weekly declines after stronger than expected Canadian hiring Friday pointed to the Bank of Canada raising lending rates from 0.25% as soon as the first quarter. Canada’s dollar had its gain checked Monday U.S. interest rate jitters weighed on broader markets and oil markets softened around $78.

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