Currency Market Analysis


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Oct 19, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar faded further from recent one-year highs as a combination of factors weighed. Broad declines pushed the greenback to three-week lows against the euro and its weakest in one and three months versus counterparts from Britain and Canada, respectively. The dollar has lost ground since it notched one-year peaks last week, a sign that a string of positives from a rebounding U.S. economy and the Fed on track to reduce stimulus have been priced in. While the Fed appears on track to raise interest rates next year, the wait for higher borrowing rates appears shorter abroad, like in Britain. To be sure, some of the dollar’s biggest losses Tuesday were against sterling which jumped nearly 1%. It also hasn’t helped the dollar that the yield on the 10-year Treasury note has struggled to close above 1.60%, the upper end of its range.

GBP

A nearly 1% rally Tuesday catapulted sterling to its highest level in more than a month against its U.S. counterpart. Sterling is on a tear thanks to growing expectations for the Bank of England to deliver an interest rate hike from record lows of 0.10% before Christmas. The pound’s advance could gain traction if UK inflation Wednesday should accelerate from already elevated levels above 3%, a development that would validate expectations of a rate hike by December.

EUR

The euro climbed to late September peaks against the greenback but its advance trailed other rivals. The euro is finding support on short covering and the paring of dollar longs after a recent five-week winning streak. The euro will look for fundamental cues this week from euro zone inflation Wednesday and Friday PMI surveys from the bloc. Evidence of moderating factory growth could leave the euro’s streak of higher highs at risk.

CAD

Buoyant oil above $83, a new seven-year high, and a moderating dollar proved a winning combination for the loonie. Canada’s dollar clocked 3 ½ month peaks on the eve of domestic inflation that is forecast to accelerate from 3.2%, a March 2003 peak. Canada’s economy appears to be performing in line with Ottawa’s forecast of stronger second half growth. The Bank of Canada is expected to taper stimulus when it renders a decision on Oct. 27.

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