News & Analysis


The loonie opened the week on a positive note, trading in the green against all of its G10 peers except the Norwegian krone. Friday ended the seventh straight weekly gain vs the US dollar as the US dollar weakened across the entire G10 board, making the loonie streak the longest since 2016. Friday’s GDP release showed the economy shrank 11.5% in Q2 on a quarterly basis, the fastest pace on record despite the sharp bounceback in May and June. With the economy essentially being shut in April, most of the GDP weakness was front-loaded, adding to signs that growth will continue to bounce back in Q3. Canadian manufacturing sales on Friday rose 20.4% in June, well above the 16.4% forecast and the upwardly revised 11.4% May release. Its effect on the loonie was negligible however, as the almost two-month-old figures provide no new information at this point. Oil prices climbed this morning after having traded in a range-bound on Friday, with WTI currently trading at $43.30pb and Brent at $46.40pb. This week’s outlook for the Canadian dollar depends on July’s US and Canadian statistics. In Canada, all eyes are on Friday’s labour market data while the rest of the week is light on the calendar, with the manufacturing Purchasing Managers’ Index on Tuesday being the only other release of note.


The dollar is trading cautiously this morning after getting its teeth kicked in last week following Fed Chair Jerome Powell’s speech at Jackson Hole. With Powell outlining a new policy strategy and saying that the Fed will prioritise employment with an increased tolerance for higher inflation, this adds up to a significantly more dovish outlook for interest rates. In the data front, Personal Income increased by 0.4% in July and Spending rose 1.9%, both above expectations. On the other hand, the headline PCE price index rose to 1.0% year-on-year from July’s 0.8% but fell short of expectation which was set at 1.2% YoY. Meanwhile, the core PCE price index, which the Fed uses to guide monetary policy, climbed to 1.3% YoY, roughly in line with the previous 1.1% and consensus of 1.2%. This week’s focus turns to the non-farm payrolls, which is expected to come in at 1.5 million, while weekly initial jobless claims continued to run above 1 million a week in August. If permanent job losses remain low in August, this would be a sign that the labour market recovery has the potential to be faster than from 2009 onwards, considering that more than 50% of the current unemployed workers report being only temporarily laid off. Today’s economic calendar for the US is virtually blank, leaving the greenback at the mercy of general market mood.


The euro started off the week with a bang and continued to appreciate against the US dollar, reaching fresh highs last seen two weeks ago. The single currency seemed rather unaffected by the disappointing release of the German Gfk Consumer Climate Index, which unexpectedly dropped -1.8 in September from the prior reading of -0.2. Meanwhile, economic expectations improved to 11.7 from 10.6, while income expectations fell sharply to 12.8 form 18.6 in August. Separately, eurozone Economic Confidence rose to 87.7 on Friday, while industrial and services confidence printed better than expected and were only down to -12.7 and 17.2 respectively, compared to the -13.0 and -23.0 consensus. The euro’s indifference to the data likely comes from the carry-over effect of the dovish signals from Federal Reserve Chair Jerome Powell on Thursday, which continues to push EURUSD up. Today is all about inflation for the eurozone, with Consumer Price Indices from Germany, Spain, Italy and France being released throughout the morning.


Sterling opened the week on the back foot and is trading in the red across the entire G10 except for the Japanese yen as concerns about the lack of progress of Brexit talks and the new UK Treasury Tax plan are weighing on the pound. Brexit concerns are under the spotlight again after France’s Foreign Minister Jean-Yves Le Drian stated this morning that negotiations are not advancing because of the UK’s intransigent and unrealistic attitude. On the other hand, UK Treasury officials are pushing for significant tax increases that were reported over the weekend and could include tax raids on pensions and capital gains. Chief Secretary of the Treasury, Steve Barclay, said on Times Radio that “the real objective is to reduce the economic scarring from Covid” and “what we’re focused on is how do we get the economy firing up again”. The Treasury is also planning on scaling back policies which support workers’ wages and guaranteed loans to businesses, shifting the burden of providing stimulus to the Bank of England.  The effects of the narratives weighing on the pound may still be subdued as today is a British holiday, meaning that the aftermath may worsen later.



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