News & analysis


The loonie closed out last week’s session nearly a percentage point lower after a slide in crude markets and the Bank of Canada’s latest policy announcement featured front and centre. This week, the data calendar is lighter for the loonie, with the CPI release on Wednesday the main data release of note. With parliament also set to resume next week Wednesday, and speculation rife that the new Conservative Party leader Erin O’Toole may strike a vote of no confidence after the Prime Minister’s throne speech, the focus this week for USDCAD will be on the upcoming Federal Reserve meeting. After the US central bank announced its shift towards an average inflation targeting framework, markets have become accustomed to the idea of a weaker dollar within the recovery phase of the business cycle. The Fed will have the markets undivided attention this week as the shift to a new inflation targeting framework signals its review is concluded, meaning further details on its new forward guidance measure for additional policy instruments may be forthcoming. USDCAD could start to see diverging central bank reaction functions should the Fed announce further measures, providing the pair more resistance to a break to the upside should one occur. Whether the Fed’s announcement will lead directly to a weaker dollar and thus a bounceback in the loonie towards recent highs is yet unknown, but Wednesday afternoon is set to hold fireworks regardless.


The dollar has been trading on the back foot in this morning’s session as G10 markets rally en masse, with gains led by NZD and GBP. This week, the dollar could be in store for a Federal Reserve meeting that is set for the history books. Jerome Powell’s speech last month at the Federal Reserve’s virtual symposium saw the announcement of sweeping changes to the Fed’s longer-run statement on goals and strategy. This week’s meeting will be the first where practical details of the implications of this strategy change are discussed in terms of actual policy decisions and forward guidance. In addition to more clarity on the Fed’s new average targeting approach, asset purchases may be tweaked, and forward guidance is likely to be revised to be tied to inflation and/or labour market outcomes. No US data will be released today, with the week’s calendar commencing tomorrow with the Empire State manufacturing index and industrial production data.


Following severe losses earlier last week, the pound was stable over Friday’s session and through this morning’s trading. Today’s main focus for markets will be the second reading of the Internal Markets Bill published last week to general controversy. The Bill contains provisions that would breach the provisions of the Northern Island Protocol of last year’s EU withdrawal agreement and has faced opposition from within the Conservative Party for this reason. Voting on the second reading could be as late as 10, although formal opposition from the Conservative backbenches is likely to be limited to speeches and abstentions at this point, with the major crunch point for the Bill coming when potential amendments are voted on next week. A common guess among Parliament watchers is that around 30 Conservative MPs are willing to vote for amendments removing the controversial provisions of the Bill – not enough to surpass the Government’s comfortable working majority on the issue, especially when the votes of the Northern Irish DUP are considered. Political manoeuvring and spin-doctoring is likely to continue throughout today, and indeed the rest of the week, as trade negotiations with the EU carry on. This morning’s other main news story is a report from research from the Institute for Employment Studies, which estimated almost 700,000 workers were likely to be made jobless by the end of the year. The estimate is based on information from the Insolvency Service. Official unemployment data will be released tomorrow morning at 07:00 BST and is expected to show the first serious increase in unemployment since the pandemic began. Later in the week, the Bank of England’s latest policy decision, meeting minutes, and statement will be released on Thursday.


The euro made several attempts at a rally against the dollar last week, but pared back its gains each time, closing the week only marginally higher against the US dollar. Even hawkish ECB comments were not enough for the pair to hold onto the majority of its rally from Thursday, suggesting that EURUSD may continue to experience headwinds for a while. The euro is trading in a narrow band in the G10 space this morning after comments from ECB Vice President Luis de Guindos mirrored ECB President Christine Lagarde’s stance on the euro. Over the weekend, he repeated that the central bank does not target the exchange rate but acknowledged that it is an important variable. In terms of virus numbers, the eurozone is seeing a surge throughout the bloc, with France reporting more than 10,000 new cases on Saturday and cases also spiking in neighbouring countries including Germany and Spain. If the acceleration in new daily infections continues, this may lead to more bumps in the economic recovery as Q3 comes to an end. Today on the eurozone data front, the focus turns to the industrial production figures that are released at 10:00 BST.



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