The loonie was no exception to the USD weakness story yesterday and climbed some 0.15% against the greenback as crude oil prices rose, while Bank of Canada Governor Macklem hit the media to reiterate his view on inflation. Macklem stated the surging inflation is transitory but not short-lived, and reassured the BoC would keep inflation under control. With the data calendar sparse for the rest of the week, the loonie’s tight ranges may remain intact and with price action driven by developments in bond and commodity markets.
The dollar continued to pare back gains in yesterday’s session after Friday’s strong jobs report from the US. An empty data calendar was offset by several Fed speeches, although no new information was shared. Fed President Charles Evans, who is a voting member, does not think a rate hike is appropriate until 2023 and stated officials have time to be patient. His more hawkish colleague Patrick Harker does not expect a rate hike before tapering ends, which is also no news to markets. What markets did not know until yesterday however was that Randal Quarles will step down from the Fed at year-end, giving President Joe Biden another opportunity to shape the FOMC committee. For the appointment of next year’s Fed Chair, Biden interviewed Lael Brainard when she visited the White House last week. Treasury yields and the dollar dipped moderately following the news, as the Fed could be more dovish under the guidance of Brainard. Brainard and current Chair Jerome Powell are the only two candidates who have publicly surfaced as being in the running, but Brainard may also be positioned as Vice Chair of the Supervision committee given Quarles’ resignation. Biden will make the decision by Thanksgiving, according to Politico.
Yesterday’s EUR action was nothing to write home about as movements in EURUSD mainly stemmed from a retracement in the dollar. This morning, the pair briefly broke out above key levels to touch fresh highs, but lower front-end yields in the eurozone keep a lid on gains as market bets against interest rate hikes by the European Central Bank have declined lately. Comments from ECB President Lagarde and Chief Economist Lane supported this view. Lane stated it would be counter-productive to tighten policy now, while Lagarde reiterated she is confident the current higher inflation is transitory. Elsewhere in Europe, tensions between the EU and Poland remain elevated after the European Court of Justice ruled yesterday that Poland had politically interfered in its local judiciary. The country is now threatening to stop paying its membership fees to the bloc if the situation worsens, but the impact on the Polish zloty has been muted so far. Data wise the focus will be on German ZEW confidence data at 10:00 GMT today along with several ECB speakers throughout the day.
The pound rallied over half a percent against the dollar yesterday, but this wasn’t primarily due to any GBP specific dynamics as the dollar softened across the board. While sterling’s rally positioned it towards the top of the G10 pile, the pound’s rally should be viewed in reference to last week’s substantial depreciation following the dovish BoE shock. Today, the data calendar remains sparse for the UK, with the focus resting on BoE policymakers. At 15:30 GMT, Deputy Governor Broadbent is set to speak on labour shortages, but commentary is expected to centre around the agricultural sector as he will be speaking in front of the Environment, Food and Rural Affairs Committee in Parliament. Shortly after, Governor Bailey is set to speak on a panel at an inequality conference at 16:00 GMT. Again, commentary around near-term monetary policy is unlikely given the focus of the event.