News & analysis


The Canadian dollar wasn’t exempt from the broad dollar rally yesterday, as it slipped 0.32% against the greenback. The main news out of Canada was that the AstraZeneca Covid-19 vaccine would now not be administered to those under the age of 55, a move which was reverberated in a similar fashion across parts of Europe by health officials. While the loonie has retraced most of its losses this morning, as it climbs 0.25% against the dollar in the early part of the European session, volatility in the pair may start to increase hereon in. Today, January’s GDP data is released at 13:30 BST, with expectations sitting at a 0.5% increase despite strict lockdown measures being imposed across Ontario and Quebec. Meanwhile, OPEC+ are set to announce their latest decision on production cuts on Thursday, with no change expected. Finally, with most markets enjoying a longer weekend, Nonfarm payroll data is released on Friday in what could be a limited liquidity session.


The US dollar was rampant once again in yesterday’s session, as the 10-year treasury yield rose to above 1.77% at one point, before closing out the session just above the 1.7% mark. The focus in the US has been primarily on fiscal and vaccine developments, with both being conducive for the economic recovery of late. President Biden is set to announce his plan for additional fiscal stimulus today, which is expected to sit in the region of $3-4trn over the next 10-years, focusing on updating the US’s ageing infrastructure. A second proposal is then expected in a few weeks time, which will focus “squarely on creating economic security for the middle class through investments in childcare, healthcare, education and other areas” according to White House press secretary Jen Psaki. The additional stimulus package was arguably behind yesterday’s fixed income moves, but is having less of a market impact than the previous covid-relief package. This is due to the fact that the infrastructure package will take a longer time to impact the economy, meanwhile it is partly funded by increasing taxes in certain areas.


The euro fell to new lows against the US dollar in yesterday’s late trading session amid a continued wave of USD strength, and extended the fall further until this morning before its rebound. With the GBPUSD and EURUSD 1-day charts looking almost exactly alike, the price action is undoubtedly coming from the US side in the absence of idiosyncratic factors. In terms of data, yesterday’s inflation figures from Germany showed a nearly 2-year high as a jump in fuel costs added to the range of factors elevating prices. Consumer prices were up 2% from a year earlier, with the jump partly reflecting the expiration of the temporary VAT cut, an increase in the minimum wage and changes to the composition of the CPI basket along with the higher fuel costs. In the months to come, base effects will also start to enter as last year’s subdued inflation prints due to the lockdowns will cause YoY numbers to be inadequately high as the lockdown gets lifted.  French inflation from this morning showed an increase in March of 0.6%, slightly undershooting the 0.7% consensus and printing well below the German reading.  German unemployment is due next at 08:55 BST, however with markets almost ignoring the CPI prints as they are aware of the factors pushing up prices, they are likely to also ignore labour market data as the furlough schemes are still in play. As long as these programmes run, markets will look past unemployment data and instead focus on directions in monetary and fiscal policy. For today, comments from the ECB’s Villeroy, Rehn and Visco will therefore be in focus for markets.


Sterling’s price action this week has been driven by broader market dynamics thus far, with the pound holding recent levels against the dollar after its March consolidation. Meanwhile, as the situation deteriorates further in the eurozone, GBPEUR continues to march higher. In yesterday’s session, the pair touched its highest level in just over a year as the pound weathers the storm of broad USD strength better than its European counterpart. This morning, the UK’s economic data printed in a mixed fashion. The BRC shop price index for March showed no change from February at -2.4%, while the Nationwide house price index fell 0.2% MoM in March. Released alongside these more timely data points was the final reading of Q4 GDP, which saw an upward revision from 1% to 1.3% QoQ. While the data still showed the UK economy was the hardest hit in the G7 in Q4, as it embarked on national lockdown measures, the upward revision lifts the base at which the economy enters 2021. With the UK economy on track at present to begin reopening the service sector come April 12th, economic optimism may soon shift back to sterling, lifting it from recent lows against the dollar.


USDJPY hit a fresh 1-year high yesterday as the US yield story continues to dominate FX price action, but the pair continued climbing this morning despite a softer US dollar across the board. Overnight data showed that industrial output fell by more than estimated in Japan, with the headline YoY figure falling 2.6% in February vs the consensus of a 1.8% decline. With US President Joe Biden announcing his plan for an additional fiscal stimulus package today, the yen heads for its longest run of losses in nearly two months. Beyond Biden’s infrastructure related speech today, JPY will take cues from US Treasury yields and quarter-end flows on its last fiscal day of the year, which could excerpt additional pressure on the currency pair as yield spreads continue to be a dominant driver.



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