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Dollar dumped again despite positive PMIs with AUD and NZD leading the way

Dollar dumped again despite positive PMIs with AUD and NZD leading the way

The dollar got off to a slow start yesterday, weakening against several major currencies until Markit purchasing managers’ indices printed well above expectations, causing a broad dollar rally. The manufacturing PMI jumped from 53.4 to 56.7, with the equivalent services PMI rising from 56.9 to 57.7. read more

Vaccine optimism dents the dollar again as FX markets open the European session in the green

Vaccine optimism dents the dollar again as FX markets open the European session in the green

Sterling’s recent rally has been cheered on further by the UK government as news of further fiscal stimulus, progress on Brexit talks and positive vaccine news take the national media headlines this morning. read more

Markets caught between dismal near-term virus situation and encouraging medium-term vaccine development

Markets caught between dismal near-term virus situation and encouraging medium-term vaccine development

Broad risk appetite appears stuck between poor short-term news, with rising Covid-19 cases in Europe and the US, and encouraging vaccine data. Next week’s calendar offers a number of points of interest, including the UK Treasury facing up to this exact trade-off in its latest spending review, and FOMC meeting minutes set for release. read more

Dollar recedes on renewed fiscal stimulus hopes

Dollar recedes on renewed fiscal stimulus hopes

While rising cases from the second wave in the US remain concerning, the double whammy of fiscal stimulus and vaccine hopes is helping support the 2021 growth outlook, which markets are repeatedly looking to trade-off instead of the near-term risks of further lockdown measures. read more

CBRT: The return of the one-week repo rate

CBRT: The return of the one-week repo rate

The recent lira rally below the 8.00 handle caused by the changing of the guard at the CBRT and Finance Ministry, along with conducive comments for higher rates in the short-run by President Erdogan, would prove to be fickle if the CBRT didn’t meet expectations today. read more

Risk-off channel into USD alive and kicking as second wave concerns outweigh vaccine optimism

Risk-off channel into USD alive and kicking as second wave concerns outweigh vaccine optimism

Markets are currently trading like a broken boiler; you don’t know whether they’re going to run hot or cold until you wake up and check that morning. This is the case with the dollar and G10 FX markets in general as they switch between trading on positive vaccine news leading to a more positive 2021 growth outlook and a deteriorating Covid situation. read more

Polish zloty recovers from record-lows while political risks and extended lockdown measures loom

Polish zloty recovers from record-lows while political risks and extended lockdown measures loom

While most renewed lockdown measures globally have led to smaller economic losses and less of a shock in financial markets than the initial outbreak in Q1, the Polish zloty still plunged to record-lows against the euro after the government outlined renewed containment measures at the end of October. read more

Vaccine optimism appears to be no game-changer for ECB’s Lagarde

Vaccine optimism appears to be no game-changer for ECB’s Lagarde

The euro traded with a mixed tone across the G10 currencies yesterday and remained flat on the day vs USD. Currency markets are running hot and cold between rising Covid cases and vaccine optimism, but European Central Bank President Christine Lagarde played down the recent vaccine headlines. read more

Dollar trades heavy as states such as California and Michigan implement tighter lockdown measures

Dollar trades heavy as states such as California and Michigan implement tighter lockdown measures

The latest lockdown measures implemented in California and Michigan, along with tighter measures in Oregon, Washington and New Jersey, are likely to keep the dollar capped in the coming weeks. The second wave in the US is starting to climb rapidly with the US adding a million new cases in the first 10 days of the month alone. read more

Risk is back on as RECP trade deal struck for APAC nations

Risk is back on as RECP trade deal struck for APAC nations

The Regional Comprehensive Economic Partnership struck between China and 14 other nations in the APAC area has helped boost market sentiment this morning. A traditional risk-on vibe is being witnessed across all markets this morning as oil trades 2.5% higher, the dollar broadly sells off in both G10 and EM spaces. read more

Vaccine euphoria in markets ignores material questions about timelines and distribution

Vaccine euphoria in markets ignores material questions about timelines and distribution

Although the US election remains contested by Donald Trump, this week’s main news was the release of positive data from Pfizer’s Covid-19 trials. Price action in G10 and EM FX has been indecisive, with the US dollar mounting a modest rally against several currencies that has come under threat of reversing on Friday. read more

Cummings’ resignation helps sterling rally as risk of no-deal exit takes another leg low

Cummings’ resignation helps sterling rally as risk of no-deal exit takes another leg low

Sterling fell some 0.8% in yesterday’s trading session, resulting in sterling suffering the second-largest amount of losses in the G10 space behind the Norwegian krone. With Bank of England Governor Andrew Bailey speaking at the Financial Times conference early yesterday morning, the pound didn’t suffer too much from the miss in Q3’s GDP print. read more

Rising virus cases support the dollar while havens go bid

Rising virus cases support the dollar while havens go bid

It was another day of broad dollar strength against the G10 yesterday with only the New Zealand dollar making inroads against the greenback. In the US, the election still hasn’t come to a conclusion as incumbent Donald Trump remains reluctant to concede to Vice President Bident. read more

Sterling outperforms as expectations of negative rates from the BoE are reversed

Sterling outperforms as expectations of negative rates from the BoE are reversed

Sterling was the stand out performer in the G10 space yesterday, rallying 0.82% against the dollar and 0.78% against the euro. The source of sterling’s rally came from comments by the Bank of England’s Chief Economist Andy Haldane yesterday, who said that the vaccine breakthrough could be a gamechanger for the UK economy. read more

Risk appetite enjoys Pfizer boost but the dollar bounced back in late trading

Risk appetite enjoys Pfizer boost but the dollar bounced back in late trading

The dollar has had a chaotic 24 hours, at first tentatively weakening yesterday morning as an extension of last week’s price action. However, the news that Pfizer’s Covid-19 vaccine trial had gone better than expected gave risk appetite a boost and caused a sharp rally in the greenback that was particularly acute against the euro and yen. read more

Pfizer results buoy risk appetite in markets

Pfizer results buoy risk appetite in markets

News that a vaccine developed by Pfizer Inc and partner BioNTech proved 90% effective in the first 94 subjects who were infected by the new coronavirus has helped buoy market risk appetite today, prompting big moves in USDJPY, higher-beta G10 currencies such as NOK and NZD, WTI and EM FX. read more

Don’t look beyond today’s TRY rally, the market may be setting itself up for disappointment

Don’t look beyond today’s TRY rally, the market may be setting itself up for disappointment

The lira enjoyed the biggest one-day jump in two years and is trading over 5.5% higher in today’s session, CDS pricing - insurance against Turkish government debt default - has also dropped, while the Borsa 100 index is 2.6% higher also. read more

Biden all but moved into the White House in markets’ eyes, Brexit back in focus

Biden all but moved into the White House in markets’ eyes, Brexit back in focus

This morning’s price action has been mostly consistent with this theme, after all major news networks called the election for Biden over the weekend. Current President Donald Trump has not conceded defeat, and launched a number of legal challenges, which currently seem to have little chance of changing the apparent outcome. read more

Nervous tone in markets as US election heads goes down to the wire and into the courts

Nervous tone in markets as US election heads goes down to the wire and into the courts

One possible interpretation of this price action is that the possibility of a comfortable win for Democrats in the White House and Senate would lead to large fiscal stimulus, and therefore reflation – the close race undid this trade and caused a dollar bid throughout Wednesday night. read more

CAD labour market gains excel, but markets focus on Pennsylvania result

CAD labour market gains excel, but markets focus on Pennsylvania result

Today’s labour market report was always going to be difficult to unpack. Was the slowdown in the labour market recovery a product of the 28-day lockdown in Quebec and Ontario, or is this part of the natural slowdown in the recovery expected in this phase of the recovery. read more

Votes continue to be counted as Georgia Senate race heads for run-off, dollar feels the pain

Votes continue to be counted as Georgia Senate race heads for run-off, dollar feels the pain

The dollar’s downfall was the main focus for markets yesterday, with the greenback declining 1.7% against NOK in the G10 and nearly 3% against RUB in the EM space. Regardless of the narrative, the dollar’s decline was broad-based, and election results continued to filter in throughout the night. Clarity over the outcome of both the Senate and Presidential election remains elusive read more

Greenback on the back foot with Joe Biden taking Wisconsin and Michigan

Greenback on the back foot with Joe Biden taking Wisconsin and Michigan

The US dollar is well and truly on the back foot this morning and is weaker against most major currencies, while the US Presidential election results remain outstanding and a possible legal battle is commencing. Major news outlets such as the Associated Press have “called” a total of 264 electoral college votes for Democratic candidate Joe Biden. read more

Head of Market Analysis at Monex Europe discusses contested election consequences with Bloomberg

Head of Market Analysis at Monex Europe discusses contested election consequences with Bloomberg

Head of Market Analysis Ranko Berich discusses the consequences of a contested election with Bloomberg as the votes are counted and the outcome remains unclear. read more

US dollar claws back losses as Trump unexpectedly takes key swing states overnight

US dollar claws back losses as Trump unexpectedly takes key swing states overnight

The dollar saw wild swings along with other macro markets last night after Donald Trump’s unexpectedly strong performance in key swing states in yesterday’s Presidential election. Prior to the first results becoming available, markets were happily assuming that a clear Biden and Democrat win would lead to large stimulus spending, a higher path for inflation, and a weaker dollar. read more

Dollar sells off as US electorate head to the polls

Dollar sells off as US electorate head to the polls

The US dollar is trading on the back foot this morning, as The United States heads to the polls today for arguably the most significant election in decades. The potential for policy divergence Donald Trump and Joe Biden is significant across a wide range of areas including domestic, fiscal, and foreign policy. read more

The Risk of a Disputed Election Looms Over Markets

The Risk of a Disputed Election Looms Over Markets

The US election is set to eclipse all other events in terms of significance for financial markets next week, despite the calendar featuring otherwise important events such as Fed and Bank of England meetings, as well as non-farm payrolls.  read more

Lockdown measures spur dollar on just hours before election day 

Lockdown measures spur dollar on just hours before election day 

Stricter containment measures announced in Europe over the weekend has rejuvenated the haven flow into the dollar again in today’s trading session, just hours before the US electorate head to the polls for the 2020 election. read more

US election primer

US election primer

With markets having mostly digested the Federal Reserve’s change in reaction function, and the rout in risk assets of Q1 and Q2 now comfortably in the past, the US election stands out as the second biggest source of uncertainty for global macro markets, after the ongoing Covid-19 pandemic. This is not an ordinary situation. US elections rarely offer such drastic prospects for policy change that they significantly alter the global macro outlook. read more

Euro tumbles as Ms Lagarde opens door to ramped up stimulus

Euro tumbles as Ms Lagarde opens door to ramped up stimulus

Fresh national lockdowns in France and Germany initially caused the slump, the grim outlook of the European economic recovery painted by ECB President Christine Lagarde in yesterday’s press conference sent the euro down further. read more

No surprises at today’s European Central Bank meeting

No surprises at today’s European Central Bank meeting

Today's statement is almost identical to the one released after the September meeting, apart from the first paragraph. In this paragraph, the ECB stated that it will release its new macroeconomic projections with a thorough reassessment of the outlook and the balance of risks in December. read more

Renewed lockdown measures lead to the return of the dollar in FX markets

Renewed lockdown measures lead to the return of the dollar in FX markets

Markets were served a reminder of what it was like back in Q2 yesterday as Europe began to tighten lockdown measures yet again, resulting in the dollar being thrust higher across the G10 currency board. read more

Risk appetite plunges as Europe tightens lockdown measures

Risk appetite plunges as Europe tightens lockdown measures

Italy suffered the most daily deaths since May, while new infections in Spain surged by 59% vs a day earlier. France will likely announce new measures tonight, with the biggest one being a one-month lockdown starting this week. read more

USD bid as Supreme Court comes into focus for election

USD bid as Supreme Court comes into focus for election

The Supreme Court was the source of the day’s most significant news, with new Justice Amy Coney Barret being confirmed by the Senate in a 52-48 vote that fell entirely along partisan lines apart from one Republican Senator who voted against her confirmation. read more

Dollar rises on risk-off flows as cases continue to rise in major economies

Dollar rises on risk-off flows as cases continue to rise in major economies

The dollar is trading higher against several major currencies this morning, with the pattern of winners and losers roughly suggesting a hesitant tone in risk appetite. NOK, CAD, and AUD are the biggest losers in the G10 currencies, while among emerging markets ZAR and TRY are underperforming, the latter having reached a fresh all-time low against the greenback. read more

BoC and ECB to take center stage before US elections

BoC and ECB to take center stage before US elections

This week’s major theme has been the ongoing US fiscal stimulus talks between House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin. Headlines around the fiscal funding talks contributed to chopping and changing risk sentiment all week, flinging the US dollar with it. read more

Domestic outbreak eases and economy starts to rebound but investors aren’t convinced

Domestic outbreak eases and economy starts to rebound but investors aren’t convinced

Since our last ZAR update, conditions in South Africa have improved markedly. Over the last two months, the number of new cases and the positive test rate have fallen dramatically, allowing the South African economy to lower its lockdown from level 3 to level 1 over the course of two stages. read more

Bank of Canada Business Outlook Survey falls to the wayside

Bank of Canada Business Outlook Survey falls to the wayside

The Overal Business Outlook Survey improved from -7.0 (revised to -6.9) in Q2 to -2.2, but this likely underreports the current situation as it doesn’t include the effects of the latest lockdown measures imposed in Canada’s two largest provinces; Quebec and Ontario. read more

Risk appetite sours as markets eye a winter of restrictions

Risk appetite sours as markets eye a winter of restrictions

This week’s major theme has been a deterioration in broad market optimism about growth and reflation, with the US dollar and back-end sovereign bonds the main beneficiaries of the move. Considering rising coronavirus case counts and the resulting increases in restrictions on economic activity being seen across many western economies, the deterioration in overall risk appetite makes sense. read more

Sterling slides back below 1.30 as no-deal risk rises ahead of key EU summit

Sterling slides back below 1.30 as no-deal risk rises ahead of key EU summit

Yesterday, concerns around Brexit negotiations continued to drive the pound lower as Boris Johnson’s self-imposed Brexit deadline, Thursday the 15th October, rapidly approaches with no deal in sight. Areas of contention such as state aid and fishing rights are yet to be bridged, meaning a narrow trade deal ahead of tomorrow’s EU summit is unlikely. read more

Markets await fresh lockdown measures in Europe as the dollar goes bid

Markets await fresh lockdown measures in Europe as the dollar goes bid

After climbing for four days on the bounce, the pound is struggling to hold its recent highs this morning as the market’s appetite for risk starts to unwind. The announcements that major economies will continue to tighten lockdown measures, albeit in a localised manner for now, continues to weigh on risk appetite as downside risks to the global economic recovery start to materialise. read more

EURPLN testing day’s high after negative rate comment

EURPLN testing day’s high after negative rate comment

EURPLN popped upwards today as the zloty weakened following an article by National Bank of Poland Monetary Policy Council member Eryk Lon, who wrote that Poland could move into negative rates if consumer sentiment worsens. read more

Counting the cost of the ongoing second wave of Covid-19

Counting the cost of the ongoing second wave of Covid-19

It’s been an indecisive week for G10 FX, with the major pairs remaining within recent trading ranges as hopes for US fiscal stimulus faded and several regions continued to report worsening Covid-19 pandemics. Sterling will be in focus next week, with plenty of MPC member speeches and labour market data scheduled ahead of Thursday’s potentially fateful EU summit. read more

Loonie enjoys employment gains to extend rally

Loonie enjoys employment gains to extend rally

In September, Canada's economy added 378,200 jobs compared with 245,800 in August, bringing the unemployment rate down from 10.2% to 9.0%. Much of the gains were a by-product of loosening containment policies in Canada as the survey was conducted between the 13th and 19th of September. However, this isn't to last. read more

Czech data may spur short-lived optimism as virus risks loom

Czech data may spur short-lived optimism as virus risks loom

From August to September, CZK had weakened over 4.5% against the euro, while the Polish zloty fell by almost 5% against the euro and the Hungarian forint even saw a 6.5% decrease vs the euro. However, since yesterday the Czech Republic has become the EU’s worst hotspot with the most cases per capita over the last two weeks. read more

Dollar back in the dumps as fiscal stimulus optimism plummets

Dollar back in the dumps as fiscal stimulus optimism plummets

The news that further fiscal stimulus measures won’t be enacted prior to the November election ring through markets today, shortly after Fed chair Powell reiterated the need for active fiscal policy in response to this crisis yesterday. read more

Trump covid-19 infection presents a wild card for markets as sterling goes on Brexit merry-go-round

Trump covid-19 infection presents a wild card for markets as sterling goes on Brexit merry-go-round

This week’s calendar offers several important looks at both Fed and ECB policy, while Brexit negotiations will likely continue after a high-stakes call between Boris Johnson and Ursula von der Leyden. read more

Polish zloty hops on October’s EM rally train

Polish zloty hops on October’s EM rally train

While other Eastern European currencies like the Czech krona and the Hungarian forint are also performing well amid general EM currency gains this week, the zloty got an additional boost after a Polish central banker signalled that having near-zero rates after 2020 would be harmful to the Polish economy. read more

Reality bites sterling as EU remain firm on state aid and and withdrawal agreement

Reality bites sterling as EU remain firm on state aid and and withdrawal agreement

The pound has been hammered this morning by the twin revelations that trade talks have failed to produce a breakthrough on the crucial issue of state aid, and that the EU has prepared a legal response to the Government’s Internal Markets Bill. Sterling is now facing up to the harsh reality of an uncompromising EU stance on state aid and last year’s withdrawal agreement. read more

Canada’s economy expands by 3% in July

Canada’s economy expands by 3% in July

Statistic’s Canada may have just won this month’s forecasting prize as July’s GDP comes in at 3.0% MoM, smack bang on their provisional estimate released along with the Q2 GDP report last month. Given that economists’ expectations centred around this preliminary estimate quite heavily, today’s GDP release caused little market reaction for the loonie. read more

Dollar on back foot after contentious Presidential debate

Dollar on back foot after contentious Presidential debate

Last night’s first Presidential debate was highly contentious, with incumbent Donald Trump and challenger Joe Biden trading barns on a variety of domestic topics such as the economy, law and order, and the coronavirus pandemic. read more

USDTRY hurtles towards the 8.00 level, which may force the TCMB into further aggressive hikes

USDTRY hurtles towards the 8.00 level, which may force the TCMB into further aggressive hikes

Even though the lira continues to carve fresh all-time lows on what seems a daily basis, progress has been made in an attempt to stop the haemorrhaging. Last week, the central bank (TCMB) opted to raise interest rates by 200 basis points, with the signal of an interest rate hike more important for markets than the actual hike itself. read more

Global risk sentiment weighs on Kiwi dollar

Global risk sentiment weighs on Kiwi dollar

The New Zealand dollar strengthened over 2% against the Australian dollar in September but failed to escape the wave of US dollar strength that developed, as weak risk appetite continued to dominate FX markets. read more

Covid cases rise and the November election creeps back into the frame as markets begin to favour the dollar again

Covid cases rise and the November election creeps back into the frame as markets begin to favour the dollar again

The week ahead offers a moderately eventful calendar that will be capped off by non-farm payrolls. However, other themes are likely to provide plenty of impetus for further volatility in risk appetite, especially as Covid cases start to rise again in Europe and North America. read more

UK outlines Kurzarbeit spin-off, but the holes in the safety net are visible

UK outlines Kurzarbeit spin-off, but the holes in the safety net are visible

Sterling exhibited a minor flurry of strength in yesterday’s session as Chancellor of the Exchequer, Rishi Sunak, announced a new wage subsidy scheme to help ease the labour market off of the more expensive furlough scheme and aid companies retention of their workforce. read more

No change in the Norges Bank’s rate path means no good for NOK in the short term

No change in the Norges Bank’s rate path means no good for NOK in the short term

The Norges Bank took a cautious tone today when it announced no change in interest rates over the next couple of years. This is not a total surprise, as the Bank already flagged higher rates from the end of 2022 during its July meeting following a less severe economic shock in Norway than in most other economies. read more

Loonie feels the blow sustained by Trudeau’s fiscal outlay

Loonie feels the blow sustained by Trudeau’s fiscal outlay

Yesterday’s throne speech saw these political and credit risks rise to the fore. In combination with the general risk-off tone in markets this week, the speech resulted in the loonie feeling the pressure, extending its slide back towards the 1.34 level – USDCAD is now trading 1.60% higher on the week. read more

Swiss franc weakens vs euro after SNB sticks with FX interventions and announces to publish data quarterly

Swiss franc weakens vs euro after SNB sticks with FX interventions and announces to publish data quarterly

The Swiss franc fell to new lows against the euro and dollar this morning after the Swiss National Bank announced to keep rates unchanged and FX intervention at a high pace if necessary, considering the strengthening of CHF. In the short term, the central bank upwardly revised its inflation outlook since June, mainly due to a rise in oil prices. read more

Lower than expected PMIs flag that winter is coming

Lower than expected PMIs flag that winter is coming

This morning’s Purchasing Managers’ Index releases from September confirmed the bleak picture of the eurozone current state, with the bloc’s services PMI dropping to 47.6 down from August’s  50.5, and the composite PMI falling to 50.1 down from 51.9. In Germany. read more

Riksbank upgrades GDP outlook but kept interest rate projection flat

Riksbank upgrades GDP outlook but kept interest rate projection flat

QE is the way to go, according to Sweden's Riksbank which kept rates at zero today and stuck with a flat interest rate projection over the coming years. The central bank pledged to continue its asset purchase programme as it navigates its way through the pandemic, which is exactly what markets expected. read more

JPY gradually advances on the closing gap between the Fed and the BoJ

JPY gradually advances on the closing gap between the Fed and the BoJ

The BoJ brought no policy moves forward, but took an upbeat tone on the economic outlook. In contrast, the Fed's move towards strengthened forward guidance moved it a step closer to the BoJ's ultra-accommodative policy stance, raising the prospect of a structurally smaller difference between US and Japanese yields.  read more

Dollar bounces back as Europe sets for a second wave

Dollar bounces back as Europe sets for a second wave

GBP Sterling has weakened further against the US dollar and the euro this morning, extending yesterday’s general trends. Both GBPEUR and GBPUSD took a further dive this morning during a speech from Bank of England Governor Andrew Bailey. Speaking at a webinar for the British Chamber of Commerce, Bailey said that the BoE needs to know how to implement negative rates, and that they should be in the toolbox, but that discussion of the topic did not imply that they would be used. Bailey also added, helpfully, that negative rates would “right puzzle” the public without clear communication on the topic. Covid and Brexit remain the two major themes for sterling, although little material new information has developed this morning. The Government has announced a slew of new measures aimed at controlling the spread of coronavirus through leaks and anonymous briefings to the media, with some expected to be formally reiterated today. Prime Minister Boris Johnson will give a speech in Parliament today at 12:30 BST. Pubs seem set to be given a 10pm closing time, while Downing Street did not deny reports that Johnson would be reversing his recent encouragement for workers to head back into the office. EUR The euro seems to be bearing the brunt of the pick-up in risk aversion sentiment in markets as fears of renewed lockdowns globally give rise to risk-off flows into the US dollar. Adding to the downside pressure on EURUSD, European Central Bank President Christine Lagarde stated on Monday that the central bank is paying close attention to the euro’s appreciation and its knock-on effect on inflation, with inflation being at its lowest level in four years. “We take it into account in the determination of our monetary policy and it’s via prices of course, via inflation, that we take it into account to define this monetary policy” Lagarde stated. Her comments sound a little watered down compared to her earlier statement during the ECB press conference of September, where she stated that the ECB does not target the exchange rate. ECB’s economist Fabio Panetta will speak at 13:00 BST today ahead of the Euro-area September Consumer Confidence and may provide further comments on the exchange rate. The Consumer Confidence Index is scheduled for release at 15:00 BST. USD Yesterday’s session was reminiscent of a Rocky Balboa film for the dollar. After weakening to multi-year lows as measured by the dollar DXY index, the greenback has been trading like the underdog in G10 FX markets but showed a flurry of strength in yesterday’s session. This was a stark message of “down but not out” to markets as news of tightening lockdown measures in Europe opened the risk-off channel back to the dollar. Today and until Thursday, Fed Chairman Jerome Powell will testify in front of lawmakers, with today’s event taking place in front of the House Financial Services Committee. While the speech is scheduled to focus around the use of the CARES act, the piece of legislation releasing $2.2trn in fiscal stimulus back in March to protect against the pandemic fallout, his pre-released text shows the Fed Chair will continue to call for more fiscal support as the recovery remains uncertain. Additional fiscal stimulus has struggled to find bipartisan support in Congress and is increasingly unlikely to be passed prior to the Federal election as the clock ticks down to the end of the Congressional session at the end of September. Today, the dollar remains supported by continuing risk-off tones being struck in Europe, with the Chicago Fed President Evans the most notable monetary policy speaker scheduled in the calendar outside of Powell’s appearance. Evans is set to speak on the US economy and monetary policy at 13:00 BST. CAD The Canadian dollar felt the brunt of yesterday’s risk-off tone, falling some 0.78% against the dollar as WTI slipped back below $40 a barrel. While little was released for Canada specific, the loonie was trampled by the general G10 FX move which saw the dollar receive a boost as European equities were routed on news of further lockdown measures. The only major news out of Canada came from the federal housing agency, which stuck with its pessimistic forecast of Canada’s housing market. Chief Economist at Canada Mortgage and Housing Corp, Bob Dugan, reiterated his confidence in the agency’s forecasts yesterday that house prices will fall between 9% and 18%. Dugan claimed that while the timing of this drop is less certain, with the agency expecting the housing market to start recovering in 21H1, the dynamics in play are more certain and are likely to lead to a drop in Canada’s housing market in the coming quarters. We believe the housing market is one of the Bank of Canada’s primary concerns heading into the recuperation phase. We expect house prices to drop with the flushing through of pent up demand set to coincide with the tailing off of mortgage deferrals, a rise in delinquencies and the removal of fiscal support measures to the labour market. Today, the loonie continues to trade at the mercy of the broad G10 move, which continues to favour flows into the US dollar, ahead of tomorrow’s resumption of parliament and the most pivotal speech from the throne from the Liberals in some time.   This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

G10 central banks and markets mull implications of a new era in Federal Reserve policy

G10 central banks and markets mull implications of a new era in Federal Reserve policy

Central banks will continue to weigh the implications of the Fed’s dovish turn and recent dollar weakness on domestic inflation outlooks, with a number of meetings this week across the globe from Scandinavia to New Zealand. read more

Loonie to extend rally on monetary policy divergence but risks are plentiful as the economy enters “recuperation” phase

Loonie to extend rally on monetary policy divergence but risks are plentiful as the economy enters “recuperation” phase

While the risks outlined in our Q2 report meant that the Canadian dollar lagged the wider G10 rally, with the loonie’s move more concentrated in the month of August as opposed to July like the rest of the G10, the period of USD weakness meant that our previous point forecasts are now overly bearish. read more

MPC vindicates market bets on increasing likelihood of negative rates

MPC vindicates market bets on increasing likelihood of negative rates

The UK economy is enjoying a fairly solid economic upswing at the moment, but increasing anticipation of negative rates in financial markets, and now increasing discussion of the issue at the MPC, highlight the extent to which everyone knows the economy is not out of the woods just yet. read more

SEK enjoys a prolonged boost as Sweden escapes a deep economic contraction

SEK enjoys a prolonged boost as Sweden escapes a deep economic contraction

Of the G10 group of currencies, the Swedish krone has seen the highest gains against EUR and USD over the year to date, surging a whopping 7% against the US dollar and almost 1% against the continuously strengthening euro. The surge came after the currency hit rock bottom in March as Covid-19 spread across the globe. read more

Markets get ready for BoE as they digest dovish FOMC announcement

Markets get ready for BoE as they digest dovish FOMC announcement

Today at 12:00 the Bank of England’s latest rate decision will be announced, alongside a policy statement and meeting minutes. The Bank is not likely to change any policy settings, but has a number of issues to address. Firstly, UK economic data has been fairly buoyant of late, but the end of the Government’s furlough scheme presents a likely shock to incomes as unemployment creeps up. read more

Slow mean-reversion amid a concerning fiscal outlook

Slow mean-reversion amid a concerning fiscal outlook

The Brazilian real has been the worst performing currency this year, with losses currently sitting over 22% and 26% against the USD and the EUR respectively. In addition to this, the BRL is the most volatile currency in the world when considering calculation periods from 1-month up to 1-year. read more

A Fed decision that could head to the history books is only hours away

A Fed decision that could head to the history books is only hours away

It's Fed day! That is right, the day for the history books, a day to get excited for. After announcing the shift towards an average inflation targeting framework, the Federal Reserve’s long awaited framework review is likely to have concluded, with the results expected to be released as early as today. read more

EM debt aversion and political risks likely to weigh down the Russian ruble until next year

EM debt aversion and political risks likely to weigh down the Russian ruble until next year

The Russian ruble is one of the worst performers in the EM space this year, even as oil rebounded by almost 30% after its initial crash at the early stages of the pandemic. Since June, the ruble saw the largest drop among EM currencies apart from the Turkish lira, plunging over 11% against the dollar and over 16% against the euro. read more

UK labour market shows early signs of impact as internal markets bill passes Commons

UK labour market shows early signs of impact as internal markets bill passes Commons

The Government’s internal markets bill passed its second reading in Parliament by 77 votes last night, despite 20 abstentions from Conservative MPs. More may join a rebellion in amending the bill next week, but for now, it seems the Government continues to command an effective majority on the issue. read more

Markets face Brexit endgame and packed central bank calendar

Markets face Brexit endgame and packed central bank calendar

The sensitivity of central banks to currency appreciation, discussions of the Fed’s new average inflation targeting framework, and Brexit were the main themes that markets latched onto this week. With the Fed potentially announcing the conclusion of its framework review on Wednesday, a suite of central bank policy decisions throughout the week, and the internal markets bill remaining in focus, the themes of this week are likely to spill over to the week ahead. Under these overarching themes, a few key market dynamics have emerged. It has almost become a market consensus that the dollar will remain weak as the Fed becomes less sensitive to the idea of an inflationary overshoot during the recovery phase. However, the idea of rate normalisation by the US central bank is one for the distant future, with focus on the evolution of QE programmes a more pressing matter for the near-term. This week’s Fed meeting may give some indication of the type of forward guidance markets are going to see from Jerome Powell and thus how the dollar is likely to trade in the earlier parts of the recovery phase. Additionally, a combination of Lagarde’s comments and a Bloomberg “sources” story has given the euro the green light to rally again, but will the ECB verbally intervene back up at the 1.20 level? Finally, sterling traders have been sent back to 2019 as markets begin to price in the risk of a no-deal Brexit. The key difference between now and then; the Bank of England. Money markets are now pricing in negative rates from the BoE as soon as February 2020. Also next week, all eyes will focus on the election of Japan's new Prime Minister, after Shinzo Abe put an end to its 8-year tenure in office due to health reasons. The Liberal Democratic Party presidential election begins on the 14th, with candidates Fumio Kishida, Shigeru Ishiba and Yoshihide Suga all jostling for the position. Suga is the current favourite but Abe’s successor will be officially announced on Wednesday 16th, just prior to the Bank of Japan’s policy meeting on the 17th.   THIS WEEK'S CALENDAR: Monday 14th: It’s a slow start to what is set to be a busy week, with only eurozone industrial production data for July released at 10:00BST and Canada’s Bloomberg Nanos Confidence index released at 13:00BST. Industrial production data is substantially lagged and will likely play a very minor role in EURUSD price action as investors already received Germany’s underwhelming industrial production data last week (+1.2% vs expectations of 4.5%). The data coming from Canada is likely to be more interesting, with consumer sentiment stalling as of late. The second reading of the controversial Internal Markets Bill in the UK is also scheduled. Tuesday 15th: Tuesday’s session starts with a bang in Asian markets. Meeting minutes from the Reserve Bank of Australia are due at 02:30BST, where markets are likely to get the rationale behind the RBA’s latest move to increase the accessibility of its Term Funding Facility. With rates set to stay at 0.25% for some time, Governor Lowe announced that the Bank “continues to consider how further monetary measures could support the recovery”. One measure was expanding the Term Funding Facility to allow banks up to 2% of outstanding credit at a fixed rate of 0.25% for three years. The facility now has a capacity of A$200bn, with A$52bn already being accessed. Will this be the last easing action by the RBA? The minutes should give us clarity. At 03:00, retail sales and industrial production data from August are due from China. These will be key metrics for markets to watch given China’s position as the leader of the global economic recovery. Retail sales are expected to grow to just -8.8% YTD, with industrial production set to break into positive territory YTD (0.3%) with a reading of 5.1% YoY expected. This highlights the two-speed recovery underway in China’s economy. The calendar then switches to UK data, with jobless data due at 07:00BST. Wednesday 16th: Markets can await the official announcement of Shinzo Abe’s successor Wednesday morning, with UK inflation data for August due out at 07:00BST. Low levels of inflation will be a concern for the Bank of England who meet the following day, but the level of inflation won’t be as important as the evolution of the economic growth rebound. The focus will then shift to the eurozone trade balance data released at 10:00BST, ahead of US retail sales data for July at 13:30BST. Retail sales data for the period in which the US economy was embroiled with the outbreak in the Sunbelt region will be a key metric for markets to analyse, with the Federal Reserve due that evening at 19:00BST. Just prior to the Fed, however, ECB member Holzmann is set to speak at 16:00BST at a virtual roundtable event, with ECB speakers in the limelight after last week’s communication blunder over the focus of the euro. Jerome Powell is set to give a post-FOMC press conference at 19:30BST, just prior to the Central Bank of Brazil’s rate announcement later in the evening. Details of the Fed and BCB meeting are below. Thursday 17th: Another busy Asian session begins with the Australian labour market report due at 02:30BST, with the unemployment rate expected to tick up to 7.7% in August, a likely by-product of the latest lockdown measures. The focus will then shift to the Bank of Japan who are expected to announce their latest policy decision, later than usual in the week due to the leadership election. The Bank of England are then up at their new early time of 07:00BST, with more details below. Just after lunchtime, the South African Reserve Bank will be in focus, with expectations suggesting another 25bps cut is incoming to help the economic recovery as fiscal policy is constrained and lockdown measures remained in play for longer than expected. US jobless claims round off the day’s events at 13:30BST. Friday 18th: After a busy week, Friday will come as a welcome relief for market participants, but the economic calendar continues at a rapid pace. To start the day, UK retail sales data for August is released at 07:00BST, while the Central Bank of Russia meet at 11:30BST. Economists’ expectations for a rate cut are practically split down the middle, with commentary from the CBR suggesting another rate cut is being discussed but isn’t a certainty. Canadian retail sales data is due at 13:30BST and will round off the week for most. Retail sales in Canada showed explosive growth in June, which is natural due to the re-opening of the economy, but Friday’s data will show if the recovery in consumption can continue. This will be of upmost importance for the Bank of Canada, which signaled this week that monetary policy will start to become more active in the coming months.   USD FOMC TO FILL IN DETAILS OF SWEEPING STRATEGY CHANGES OUTLINED BY POWELL Jerome Powell’s speech at the virtual Federal Reserve symposium this year made it clear that monetary policy in the US was moving to a structurally more dovish reaction function. The Fed Chair outlined historic changes in a new Statement on Longer-Run Goals and Policy Strategy. Powell announced a switch to average inflation targeting, and a move away from pre-emptive rate hikes as the economy approached estimates of maximum employment. Both of these changes add up to a significantly more dovish Fed, and the dollar has duly remained on the back foot since. The Fed’s ongoing framework review now appears to have been concluded, clearing the way for changes to nearer-term forward guidance issues as part of regular policy statements. This week’s Fed meeting may therefore see a third major change to the Fed’s policy, and one with more immediate implications for the dollar and US markets, in the form of outcome-based forward guidance: Recent meeting minutes and speeches have made it clear the FOMC is considering a range of possible calendar and outcome-based forward guidance. The likeliest outcome is further formalisation of the Fed’s shift away from viewing maximum employment as a constraint that will lead to rate hikes. Powell’s speech may provide a template for what outcome based guidance could look like. In his speech, the Chair stated “employment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation”. In practice, the Fed could link changes in policy to a robust, sustained convergence of inflation to a level that would threaten even the Fed’s looser average inflation target. Further details of how average inflation targeting will be implemented would be nice, but are unlikely to be forthcoming. Some guidance on the length of the averaging period would be particularly interesting, with the Fed’s 3-year forecast horizon the obvious starting point. New member “dot plot” projections will be issued, providing a related insight into members’ opinions. The previous set of projections, from June, showed members’ expectations of rates flat over the forecast horizon, but still relatively unchanged at around 2.5% over the longer run. Asset purchases, which were included in the Fed’s framework review, will also be a topic of interest, although formal changes may not be announced this week. The Fed’s current “whatever it takes” approach to asset purchases gives it great flexibility – this may be changed to a regular monthly pace that is announced ahead of time as the US recovery continues.   FOMC member projections glued to lower bound over forecast horizon – what about the longer-run?   JPY BOJ TO MAINTAIN POLICY STANCE WHILE THE CURRENCY CAPTURES ATTENTION The Bank of Japan is scheduled to meet on September 17th, while markets will also focus attention on the election of the new Prime Minister after Shinzo Abe’s departure. The Bank is set to maintain its current monetary policy stance, with heavy focus on corporate financing. Ample liquidity provision attuned with the government’s financial support program has soothed strains in the corporate sector amid the pandemic. Asset purchases remain relevant for investors, as back-end yields in the JGB bond curve raise concerns of high debt issuance. The increase in Japanese yields underpins the gradual strength in the yen, which has traded above its 50-day moving average over the last month. The currency has also been supported by a recent correction in stocks markets, following doubts on the sustainability of record high valuations in the tech sector and daunting hopes in the vaccine race. As of now, the BoJ has not rang the alarm bells about the evolution of the currency, but it might soon be forced to face questions about the need to soften the yen’s appreciation –similar to what some ECB official members recently did. The USDJPY real effective exchange rate remains slightly undervalued with respect to its 10-year moving average, but its upward trend could weigh on the BoJ’s assessment of the balance of risks to the inflation outlook in the months to come. The consensus view suggests that a break through the 104/105 level in the USDJPY rate might trigger further monetary easing, as the currency becomes too expensive for foreign customers. The attention on the evolution of the yen might become a stronger point in the BoJ’s agenda under the influence of the soon-to-be Primer Minister Yoshihide Suga, the most likely winner in next week´s LDP presidential elections. Suga is set to build on the Abenomics heritage, centered on combined fiscal and monetary stimulus. In addition, the candidate has also been reportedly linked to the importance of the FX rate as a crisis management tool. Even though the currency value is not a monetary policy target per se, the topic is yet to be exhausted amid pain in the export sector.   JPY approaching its 10-year medium real effective cost might rise attention in Japanese institutions   GBP BOE MEETS AS STERLING GETS A WHIFF OF NO-DEAL RISK AND BREXIT APPROACHES ENDGAME Sterling has been by far the worst performing major currency this week, due to a sudden and dramatic escalation in the risk of no-deal Brexit following the introduction of the Internal Market Bill, which contains clauses that would breach last year’s withdrawal agreement. Sterling has weakened roughly 5% against both the dollar and the euro compared to a couple of weeks ago, with much of the depreciation coming in the last few days. In the wider scheme of things, both these moves, and the absolute levels of GBPUSD and GBPEUR, are not as extreme as during past close brushes with no-deal. This suggests that market participants are either less concerned about the economic and market impact of the collapse of trade talks, or are taking the possibility less seriously than during previous no-deal scares. Judging how far sterling may end up falling should both sides walk away from trade talks is difficult. A twitter poll conducted by Monex this week saw more than 60% of 285 respondents say they thought GBPUSD would fall to below 1.20.   Two main avenues of uncertainty will be worth watching this week: domestic opposition to the Bill, and bilateral UK-EU relations including both a possible legal challenge to the legislation and ongoing trade talks: Domestic opposition to the Bill escalated at the end of this week. Prominent Conservative member of the House of Lords Norman Lamont called the bill “impossible” to defend. Opposition in the Lords aside, a more practical concern for the Government may be a rebellion in the House of Commons, where Conservative MP Bob Neill has tabled amendments to the Internal Markets bill removing the offending clauses. The Bill will face its second reading in Parliament next week on Monday, with The Times guessing as many as 30 Conservative MPs may be ready to rebel. Given the Government’s comfortable working majority of above 80, this seems like a stretch – particularly when the votes of the Northern Irish DUP are considered. However, the history of Brexit so far should caution against assuming a status-quo outcome. Trade talks will continue with the EU this week, after EU leaders lined up to warn that the passage of the Internal Markets Bill would seriously threaten trade talks, but did not unilaterally withdraw. Instead, the European Commission has given the UK until the end of September to amend or withdraw the legislation, while talks continue. Given the lack of progress this week, a breakthrough on contentious issues such as state aid – the subject of the Internal Markets Bill breaches of the withdrawal agreement – seems unlikely.   TOO EARLY FOR BOE TO ENJOY AN “I TOLD-YOU-SO” MOMENT ABOUT RAPID UK RECOVERY Next week’s MPC meeting will likely be a non-event for markets, given the historic Brexit drama that will likely be playing out. Recent commentary from policymakers has been optimistic, and economic data indicates a robust recovery is underway, consistent with the BoE’s expectations. Several themes will be interesting, even if no policy change is forthcoming: Chief Economist Andy Haldane and Governor Andrew Bailey have both been fairly sanguine about the end of Government furlough schemes. Haldane recently said the Government should end support, saying businesses and consumers had been “incredibly resilient”. Bailey similarly said fiscal policy should “move forward” – meaning to end furlough subsidies. The meeting minutes will shed light on exactly how optimistic the MPC is about the UK labour market and wider economy. The housing market will also be relevant here, with prices hitting all-time highs by some measures in some regions, indicating a recovery in some parts of consumer behaviour. The pace and duration of QE will be the key topic, although little clear guidance on this is likely to be forthcoming. Further asset purchases at a reduced rate remain likely at some point later this year in the UK, depending on the development of the economy, but at this current juncture, no action is likely. Negative rates are becoming a perennial topic for the BoE and may come up. Despite clear guidance from both Andrew Bailey and the August Monetary Policy Report that the measure is not imminent, OIS pricing indicates markets are increasingly anticipating the BoE may cut rates to negative as early as this year. The August MPC said that negative rates were a tool that would most likely be effective during the “upswing” phase of a recovery, when banks were less concerned about balance sheet risks. The recent falls in short-term fixed-income pricing have coincided with the latest round of Brexit angst. This suggests that markets may be anticipating the possibility that an additional drag on the economy from a no-deal scenario will force the BoE to go negative in the coming months.   Sterling OIS pricing indicates increasing speculation of negative BoE rates The dotted line indicates pricing one month ago   BRL BCB TO MAINTAIN STATUS QUO AND KEEP REMAINING POWDER DRY The Central Bank of Brazil has pretty much exhausted the policy tools that are acceptable from a cost-benefit perspective. The Bank cut rates to the record low of 2%, from the 6.50% level in December last year, with 250 basis points scrapped amid the pandemic-driven recession. The latest Copom minutes highlights the reluctance of the committee to ease further via interest rate cuts, as the group weigh on the effects of overstepping the 2% effective lower bound. Assets purchases, on the other hand, are not a policy tool of the BCB liking either, as the Bank risks the public confidence over an extended debt portfolio. An unusual instrument among emerging markets was also deployed: forward guidance. More often used in developed economies´ central banking, a strengthened forward guidance entails the promise of not rising interest rates until certain goals in the economic outlook are met. This is a plausible commitment considering the subdued current and expected inflation profile, but it is also a bold bet in terms of financial stability and asset markets. BCB´s guidance, however, does not prevent the Bank to further cuts should it becomes handy - a scenario we don´t foresee at the moment. Even though the low level of interest rates might be supportive of a faster economic recovery and a stronger currency in the medium-to-long run, additional easing (or hints of it) might not be welcomed by the forex market any longer. The BRL has coped with increased pressure from both the economic and political fronts and is set to recover from the pandemic-driven recession only gradually. Next week BCB policy review is expected to maintain the current status quo, but the currency does still face a highly volatile outlook on the back of increasing risks.   ZAR SARB SET TO CONTINUE FILLING IN THE HOLES LEFT BY FISCAL SHORTFALL Despite the monetary policy committee showing increased reluctance to enact further rate cuts over the last few meetings, economists still expect another 25bps from the SARB on Thursday’s meeting. The 50.1% annualised GDP contraction in Q2 dwarfed the 40% contraction anticipated in the SARB’s previous forecasts, suggesting the growth projections are likely to be revised down. Coupled with inflation hugging the SARB’s lower band and the recovery being riddled with load shedding and prolonged lockdown measures, we expect the Reserve Bank to lower rates to 3.25% along with the median consensus supplied to Bloomberg. The main question will be over the split. Will the committee split 3-2 in favour of the rate cut as it has in the last two meetings, or will committee members shift to signal a greater consensus towards monetary easing? With the electricity supply gap its greatest on record despite weaker demand, signaling a structural buffer to the recovery and a risk to the level of potential growth, we would argue the SARB may opt to signal a more dovish rate cut than previously.   Last week’s Q2 GDP release may make the SARB’s decision easy this week RUB RATE CUT BY CBR ISN’T SET IN STONE WITH ECONOMISTS’ EXPECTATIONS SPLIT The Russian central bank stated it will consider a rate cut next week “thoughtfully and with care” after having already slashed the key rate to a record low of 4.25% earlier this year to help its economy recover from the pandemic and crash in oil prices. Deputy Central Bank Governor Alexei Zabotkin said on Thursday that “the board of directors will consider the necessity of further rate cuts”. However, he acknowledged that the virus adds “noise” to inflationary data that the bank considers in its decision making process. The poisoning of Russian opposition leader Alexei Navalny with a military grade nerve agent heightened the possibility that western countries could slap new sanctions on Russia, delivering a big blow to the ruble. However, Zabotkin earlier stated that the ruble’s plunge will not have a special economic impact, downplaying the fact that the currency has fallen to its weakest since 2016 against the euro. The recent ruble weakness pushed inflation to a higher peak in August, with the rate slowly on course to reach the CBR’s target of 4% by early next year. Headline inflation picked up to 3.6% year-on-year in August, up from 3.4% in July, matching the forecasted median provided by Bloomberg. Zabotkin said that the CBR could cut its key rate below 4% if that is needed to boost consumer inflation back to its 4% target. However, the Deputy’s wording may be perceived as a sign of holding rates at this week’s policy meeting, especially with Rosstat releasing its inflationary data for the first week of September highlighting CPI at 3%, thus reducing deflationary concerns. In addition, the Russian government recently announced a 3% increase in public sector salaries, which may bode well for inflation in the near future and increases chances of inflation reaching the 4% target at the end of the year. Half of the economists surveyed by Bloomberg foresee a 25bp cut on September 18, but the recent commentary by the CBR’s Deputy and the latest rise in inflation data may point to a pause in the CBR’s policy.   Authors:  Ranko Berich, Head of Market Analysis Simon Harvey, FX Market Analyst Olivia Alvarez Mendez, FX Market Analyst Ima Sammani, FX Market Analyst     This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Euro surges as ECB press conference is trumped by anonymous Bloomberg story reporting on….the ECB

Euro surges as ECB press conference is trumped by anonymous Bloomberg story reporting on….the ECB

Today’s ECB presser should have been a predictable affair, but instead, an anonymously sourced story released as the press conference began sent the euro on a tear. This begs the question: should we listen to official ECB communications, or will market-moving information about ECB discussions be released to select media on an ad-hoc and privileged basis? read more

USDTRY hits fresh all time highs amid geopolitical tensions

USDTRY hits fresh all time highs amid geopolitical tensions

The Turkish Lira has been at the forefront of losses in higher-risk EM currencies this quarter, with the recent recovery in the US dollar driving USDTRY to fresh all-time highs amid worsening geopolitical tensions between Turkey and Greece, as well as ongoing concerns about Turkey's economy. read more

No-deal risk and second wave concerns send pound plummeting below $1.30

No-deal risk and second wave concerns send pound plummeting below $1.30

Sterling slumped for a fifth consecutive day against the dollar yesterday, its longest losing streak since May, as confidence in the pound is falling amid increased fears of a no-deal Brexit and a recall of coronavirus containment measures. read more

Slow road to the peso recovery

Slow road to the peso recovery

We believe the MXN should continue to gradually strengthen against both the USD and EUR, although less so against the latter as the single currency should also extend its current rally against the dollar in the following months. read more

Greenback finally catches a break

Greenback finally catches a break

Two major macro trends were seriously challenged this week, with the US dollar finally managing to stem its losses after weeks of broad declines, and US equities seeing their first major setback since March’s carnage. read more

Dollar on track for only second weekly loss since June

Dollar on track for only second weekly loss since June

The US dollar continued to rally against many major partners yesterday, and the weighted dollar index DXY is on track for only its second weekly gain since June despite the greenback paring back some of its gains overnight. read more

Markets digest major changes to Fed strategy

Markets digest major changes to Fed strategy

So far, the upshot of the week’s price action in FX has been more dollar weakness. Developments in fixed income markets were mixed, with the treasury yield curve steepening, while there was a notably sharp rise in breakeven inflation rates, particularly over the widely followed 5 year forward horizon. read more

Markets digest the implications of a structurally more dovish Fed

Markets digest the implications of a structurally more dovish Fed

Jerome Powell used his speech at this year’s virtual Federal Reserve Symposium to announce a historic change in the central bank’s monetary policy strategy, causing volatility in the dollar during the speech that turned into another wave of weakness overnight and this morning. read more

Powell ushers in a structurally more dovish Fed

Powell ushers in a structurally more dovish Fed

Jerome Powell has announced sweeping changes to the Federal Reserve's Statement on Longer-Run Goals and Monetary Policy Strategy, encompassing a significantly more dovish reaction function for the world's most important central bank. read more

Singapore dollar reaches six-month high on fiscal stimulus and broad USD weakness

Singapore dollar reaches six-month high on fiscal stimulus and broad USD weakness

As of March 30th, the MAS adopted a 0% per annum rate of appreciation of the policy band to ensure monetary and financial stability throughout the Covid-19 pandemic, and re-centred the policy band downward to the then prevailing level of the S$NEER. read more

Risk sentiment boosted amid progress on phase one talks

Risk sentiment boosted amid progress on phase one talks

The euro is trading flat against the dollar this morning, remaining relatively steady over the last week of August as risk appetite got a boost from progress in US-Sino trade developments, while headlines on a virus vaccine likely also squashed the dollar down. read more

Dollar stabilises at the end of the week, but fireworks may be in store next week with the Jackson Hole symposium scheduled

Dollar stabilises at the end of the week, but fireworks may be in store next week with the Jackson Hole symposium scheduled

In the G10 space, sterling was the top performer despite the negative Brexit outlook for the UK, and the Japanese Yen came in at a close second, owing its rally to renewed US-China tensions and lingering virus concerns about the US and global outlook. read more

TCMB hold rates and opt to continue behind the scenes tightening

TCMB hold rates and opt to continue behind the scenes tightening

Today the TCMB opted to hold the policy one-week repo rate at 8.25%. This decision came as no surprise to both market spectators and economists due to how politically sensitive higher rates are but exposes the central bank to a more aggressive hiking cycle in the future if the gamble doesn't pay off. read more

Dollar puts up more resistance today against G10 ahead of FOMC minutes

Dollar puts up more resistance today against G10 ahead of FOMC minutes

The greenback was once again on the back foot yesterday, incurring losses to most major currencies and reaching significant lows against sterling and the euro. The narrative as to why the dollar is weakening hasn’t changed too much over the last few weeks and continues to be centred around political deadlock and a slower growth outlook. read more

Morneau leaves but loonie continues to rally

Morneau leaves but loonie continues to rally

At around 7:30 pm eastern time yesterday, Finance Minister Bill Morneau held a press conference in Ottawa to announce his resignation from Trudeau’s cabinet and his position as a member of parliament. Morneau stated that he wasn’t asked by the Prime Minister to resign, but instead tendered his resignation as he no longer believed he was the appropriate person for the role. He will instead make a bid for the position of secretary general of the OECD. Job rotation within cabinets tend to occur frequently, but despite this, they tend to inject volatility in the respective currency due to the heightened level of political uncertainty. This is especially the case with the resignation occurring in such a pivotal position during Canada’s most severe economic shock in decades, where fiscal policy is expected to drive the recovery. However, the loonie barely flinched at the announcement and, in fact, extended its rally against the dollar to touch highs not seen since January. We expect the rationale behind this is two-fold. Firstly, since last weekend, speculation over Morneau’s departure has been rife. This is not only due to the WE scandal but also reported disagreements with the Prime Minister over the shape of the stimulus package. Given these reports and the current investigation into both Morneau and Trudeau due to the WE scandal, news of last night’s resignation is unlikely to have shocked many. Secondly, news that former Bank of England and Bank of Canada governor Mark Carney along with Michael Sabia, former head of Quebec’s pension fund, are within Trudeau’s inner circle likely quelled fears that rigorous economic reasoning left the cabinet along with Morneau. While a replacement has yet to be announced, the loonie continues to play catch up the G10 rally in this post-pandemic period, highlighting the market’s confidence in Trudeau’s policymaking – likely due to Carney and Sabia’s involvement in the interim. The Canadian dollar has rallied over 0.7% thus far this week despite the political rotation and the rally has been a lot smoother than one would expect. Deputy Prime Minister Chrystia Freeland has been touted as a possible replacement, along with Foreign Minister Francois-Philipe Champagne and Jean-Yves Duclos – a Quebec economist serving as president of the Treasury board. The announcement of Morneau’s replacement is likely to have limited implications for the loonie in the short-term given that the Finance Minister’s job has seemingly been diluted by the inclusion of additional economists within the decision-making process. This isn’t necessarily the norm. Markets tend to assess the economic credentials of the new Finance Minister along with their economic and political leanings to price fiscal expectations accordingly. However, with deficit spending becoming normalised across developed markets in response to the pandemic, the replacement of Morneau within the cabinet is unlikely to sway the fiscal trajectory too much in the short-term. That being said, the job isn’t an easy one to take over… Sovereign credit downgrades, high levels of unemployment, record deficits are all in play and the new Finance Minister will enter the job just week’s before Trudeau’s carte blanche on spending expires along with the CERB scheme. Volatility could also arise should Trudeau fail to announce a replacement swiftly, with the currency likely to feel the effects of the rise in speculation that a bigger event, such as Carney’s matriculation into office, is on the horizon. Although the latter is a tail risk and would only be the result of a by-election held in Toronto centre. One caveat to this view is that the participation of Carney and Sabia in the policymaking process isn’t necessarily a long-term deal. With fiscal policy now an integral part of the economic recovery, it is unlikely that Carney etc will step back from the table by their own admission. However, further down the line towards the back-end of the recovery, when fiscal policy isn’t as glamorous as it is now, is another question. That is when the concerns over who sits as Finance Minister will begin to rise and markets will begin to judge the new Finance Ministers credentials, political leanings and their effectiveness at shoring up both the economy and fiscal balance sheet.   Morneau’s departure doesn’t derail the loonie’s rally as the Canadian dollar plays catch up in G10 markets   Loonie lags G10 rally post-pandemic   Author: Simon Harvey, FX Market Analyst DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Dollar falls as phase-one review delayed and Pelosi looks to recall House

Dollar falls as phase-one review delayed and Pelosi looks to recall House

The dollar remained under pressure at this week’s open and is trading in the red against all G10 currencies except NZD this morning after uncertainties around fiscal measures had the upper hand in headlines. Congress suspended talks for the Covid-19 stimulus package on Thursday already before it left for a month-long recess. read more

TCMB walks the tightrope, will the dollar’s retreat slow?

TCMB walks the tightrope, will the dollar’s retreat slow?

FX traded with a tentative risk-on tone this week, with the dollar seeing losses to most of the G10. Euro periphery currencies such as NOK, SEK, CZK and PLN all saw noteworthy performances, consistent with improving sentiment about the region’s growth prospects. read more

EURCHF to rally as European outlook improves

EURCHF to rally as European outlook improves

With regards to the Swiss franc, we predominantly forecast EURCHF and then triangulate out our USDCHF calls with the aid of our EURUSD forecasts. We do this for two reasons. First, the Swiss National Bank practically drew a line under the 1.05 level on EURCHF during the height of the pandemic with a series of FX interventions. read more

Rapid euro rally adds note of caution to optimistic outlook

Rapid euro rally adds note of caution to optimistic outlook

The euro has surged over 9% against the dollar since mid-May, when Angela Merkel and Em-manuel Macron first signaled a desire for a joint response to the pandemic-driven recession. Compared to its G10 peers against the dollar over the last three months, the euro ranks in the middle of the currency board. read more

Dollar continues to trade mixed vs G10 as fiscal stimulus sits at an impasse

Dollar continues to trade mixed vs G10 as fiscal stimulus sits at an impasse

Measured by the DXY index, the dollar has made marginal gains over the last two days, but this is predominantly due to weakness in the Japanese yen and doesn’t fully describe the manner in which the greenback has been trading. read more

Battered dollar stumbles through August as Turkish authorities face tough choices

Battered dollar stumbles through August as Turkish authorities face tough choices

A quiet start to the trading week, but things are set to pick up on the data front with UK GDP and labour market figures, RBNZ and Banxico rate decisions to name a few. Here's a closer look at the week ahead in FX. read more

PLN trades flat despite Hawkish comments from NBP policy makers

PLN trades flat despite Hawkish comments from NBP policy makers

The Polish zloty is trading within its recent ranges this morning against USD and EUR, after comments from the National Bank of Poland’s Monetary Policy Member Eugeniusz Gatnar failed to stir volatility. read more

Dollar smile becomes a dollar smirk… 

Dollar smile becomes a dollar smirk… 

The dollar has weakened in recent weeks and months, due to a potent confluence of factors including a uniquely bad COVID pandemic, a febrile political landscape, and anticipation of the FOMC delivering a lower US yield curve for well into the future. read more

EURNOK unmoved by oil recovery, dollar weakness and EU recovery fund

EURNOK unmoved by oil recovery, dollar weakness and EU recovery fund

The Norwegian krone was the worst performing G10 currency in the year to date, reaching 11.7 per USD in Q1 before rallying to current levels of around 9.02. While the oil crash and strong dollar demand in March were the main drivers for the krone’s initial crash, it is the same factors that are now spurring its recovery. Oil markets are gradually recovering, with both Brent and WTI rising towards a 5-month high at $45.35/b and $42.60/b respectively, lending wings to the Norwegian krone and other petrocurrencies. At the same time, a severe domestic outbreak and political risks are weighing on the US dollar. With a 7-day average of over 1000 deaths per day for a week straight now, the virus outbreak in the US is more widespread than anywhere else in developed markets. The 7-day average of new daily cases is at around 60,000 nationally but is slowly declining. This will likely show in the deaths figures later on as deaths will typically lag several weeks behind, but the numbers remain excessive relative to the EU and elsewhere. Across the pond, the euro is enjoying a boost from EU leaders finally reaching an agreement for the EU recovery fund, which removed significant tail risk of fiscal distress in places like Italy. Not only will the fund cushion the blow of the pandemic panic, but it also sends markets a message that the EU is capable of cooperating in times of emergency. As long as risks remain disproportionately centered on the US economy rather than the global economy, and oil markets continue to gradually recover, NOK is likely to hold steady. Additional points on price action drivers for the Norwegian krone: The Norwegian economy has been gradually reopening as lockdown measures were scaled back starting April 20. The domestic macro environment has been improving ever since, and the nation seems to have virus cases under control. Mainland Norway’s GDP rose 2.4% from April to May, while household consumption rose 4.8%. Exports fell by another 4.5% in May after having fallen in March and April already, but this was mainly driven by a decline in metal exports as the automotive and construction industries have been operating at a low ebb. Although Q2 GDP figures for Norway are not yet released, the monthly GDP figures may indicate that the final reading will not be as bad as the figures from the US (-32.9% QoQ) or even the eurozone (-12.1% QoQ). In terms of virus cases, Norway’s new daily case change is substantially lower than its neighbouring countries. In addition, Norway has one of the lowest fatality rates worldwide. In major advanced economies, Norway is among the countries that has moved closest to their pre-crisis daily activity levels, while the US is far below its usual level of activity, according to Bloomberg’s activity indicator (chart 1). House prices in Norway saw the fastest annual growth in two years between June and July, as the Norges Bank’s rate cut to the effective zero lower bound drove mortgage rates down. Norges Bank stated earlier it aims to keep rates on hold until the second half of 2022. With the above developments in the US, eurozone and Norway in mind, we expect the Norwegian krone to trade towards the following levels over the 1m, 3m, 6m and 12m horizon. Forecast:   Norway’s daily activity close to pre-crisis levels in Bloomberg activity indicator   Norway’s net change in cases below neighbouring countries   NOK gains vs EUR today following a boost in oil, but remains unchanged over 1-month window   Author: Ima Sammani, Junior FX Market Analyst     DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

EURCHF latest forecasts

EURCHF latest forecasts

We've recently updated our EURCHF and USDCHF forecasts, an outlook will be scheduled for sometime next week. Discussion of EUR and USD dynamics will also be outlined in their respective outlooks due imminently. We predominantly forecast EURCHF and then triangulate out our USDCHF calls with the aid of our EURUSD forecasts. read more

EUR longs hit record high as traders question how much further can the greenback fall

EUR longs hit record high as traders question how much further can the greenback fall

The euro rose the most in a decade in July thanks to the dollar’s largest retreat since 2010. The euro’s largest rally in July is arguably due to expectations of a stronger economic recovery in Europe now the virus situation has stabilised. The divergence in growth expectations has also led to a build-up in EUR longs by speculative investors. read more

Non-Farms cap busy week of data

Non-Farms cap busy week of data

Covid cases rising in parts of Europe, Tokyo and Victoria could prompt the dollar to find support from the risk environment deteriorating in a broader sense as opposed to risks being isolated to the US economy. While the progression of Covid is monitored closely, key data points such as Nonfarm payrolls, central bank meetings in Australia, Brazil, the UK and India and eurozone retail sales are in focus. read more

Rand recovery to stall in new range with rally tilted towards H121

Rand recovery to stall in new range with rally tilted towards H121

Amid capital outflows reminiscent of the 2008-09 financial crisis in early Q2 due to the outbreak of Covid-19, the South African rand hit a record low of 19.3540 against the dollar in early April. While the rand has recovered over 13% from its April low, it still remains over 5% weaker than the pre-virus levels seen in February. read more

Attention turns to a stalled US recovery in Q3

Attention turns to a stalled US recovery in Q3

Higher-frequency official and unofficial data suggest that the economy followed a path similar to an unfinished letter “V” in the second quarter. Output plummeted in March and April before growing in May and perhaps some of June. read more

The euro feels the pain of the German economic collapse in Q2

The euro feels the pain of the German economic collapse in Q2

The German economy shrank by 10.1% in Q2 on a quarterly basis, one percentage point deeper than the consensus forecast supplied to Bloomberg. The slump depicted the damage inflicted by lockdown measures imposed for most of the second quarter. read more

No action from FOMC – but they may not have the luxury of inaction for much longer

No action from FOMC – but they may not have the luxury of inaction for much longer

The FOMC kept rates unchanged, extended its swap facility, and added language to its statement emphasising that the path of the US economy depended heavily on the path of the virus. read more

EURUSD reaches two-year high ahead of FOMC meeting

EURUSD reaches two-year high ahead of FOMC meeting

The euro is ranked as the best performing G10 currency against the US dollar over the course of the last two weeks after it broke through the 1.14 level on July 14 for the first time in over four weeks. read more

USD calendar in focus after greenback takes battering

USD calendar in focus after greenback takes battering

This week’s dollar weakness was a tale of two halves. The week started off with fresh fiscal stimulus announced by the EU in the form of the €750bn recovery fund, which buoyed market sentiment and led to a risk rally. read more

Dollar rout continues with tensions ramping up between the US and China 

Dollar rout continues with tensions ramping up between the US and China 

Sentiment towards the dollar continues to deteriorate this morning as US-Sino tensions and concerning Covid developments dominate headlines yet again, causing the Bloomberg dollar index to trade near its lowest level since March. read more

USDCAD BREAKS OUT OF POST-FED RANGE AS USD IS ROUTED

USDCAD BREAKS OUT OF POST-FED RANGE AS USD IS ROUTED

The Canadian dollar has just broken out of its post-Fed range, where the currency pair traded for 27 consecutive working days. The impetus behind such a move isn’t as clean cut as one would like, but comes from general dollar weakness over the last two days. read more

Euro shrugs as European leaders reach historic deal for recovery package

Euro shrugs as European leaders reach historic deal for recovery package

After a marathon negotiation session, EU leaders have finally unanimously approved a fund consisting of €390bn of grants and €360bn of low-interest loans. The total size of the seven-year EU budget is €1047bn, as proposed by EU Council Presdient Charles Muchael. read more

PMI reality check looms for major economies

PMI reality check looms for major economies

Familiar themes were the focus of attention for FX and macro markets this week, as the dollar continued to lose ground at a modest pace, US-China tensions escalated further, and China Q2 GDP handily beat expectations. Risk appetite on the whole has remained intact, despite a curious midweek fall in Chinese equities that did not result in a global rout.  read more

Dollar drifts lower after another indecisive week

Dollar drifts lower after another indecisive week

It’s been another indecisive week for the dollar, with the Bloomberg dollar index set to fall for a third consecutive week, while roughly half of the G10 currencies are up against the greenback. Some mild but fairly broad dollar strength was seen overnight that has not dented these overall dynamics. read more

ECB’s supportive message underpins gradual euro strength amid the recovery from the pandemic

ECB’s supportive message underpins gradual euro strength amid the recovery from the pandemic

The single currency is slightly trending upwards from the policy signal provided by the central bank, while it also awaits the joint recovery fund and MFF to be agreed by EU leaders at some point this summer. read more

China GDP bounces back but does little to help CNY rebuff risk-off move and equity slump

China GDP bounces back but does little to help CNY rebuff risk-off move and equity slump

China's Q2 GDP release surprised to the upside posting a 3.2% rebound from the historic 6.8% contraction in Q1. The pace of economic growth exceeded expectations by 0.8 percentage points, with industrial production continuing to lead the rebound in the second quarter, rising 4.8% in June. read more

AUD gains limited as euro also rallies

AUD gains limited as euro also rallies

This is evident in the currency market, with AUDUSD trading up to the 0.7 level in June – an 11-month high. The Aussie dollar also rallied close to its 2020 high against the euro, with gains more contained against the single currency as the euro also rallied from broad USD weakness. As a result, the AUD rally against the EUR wasn’t as dramatic as seen in AUDUSD. read more

Moderna’s results send USD lower, but will all of this change with today’s Covid data from the US? 

Moderna’s results send USD lower, but will all of this change with today’s Covid data from the US? 

After spending most of yesterday’s session relatively well supported by a deteriorating risk climate in markets, the dollar’s strength tailed off in the back-end of yesterday’s session as the results of Moderna’s testing hit the wires. read more

BoC reactive: How long is a piece of string

BoC reactive: How long is a piece of string

Tiff Macklem's first press conference and Monetary Policy Report as Bank of Canada Governor went without a hitch today, mainly because nothing was really announced. Forward guidance was what the market wanted coming into this monetary policy meeting and with the MPR shifting from two illustrative scenarios to a central scenario more akin to point forecasts. read more

Shadow cast over global recovery as UK GDP undershoots, Florida closes bars and restaurants and dollar goes bid

Shadow cast over global recovery as UK GDP undershoots, Florida closes bars and restaurants and dollar goes bid

A stark reminder to markets that the US economy is still embattled with the outbreak of Covid-19 and equity indices saw a marked turnaround to dive into negative territory. read more

China Q2 GDP marks blockbuster calendar

China Q2 GDP marks blockbuster calendar

This week’s busy data and event calendar offers multiple opportunities for both idiosyncratic moves in individual currencies, as well as broad thematic changes in risk appetite, which will be influenced by the trajectory of the global coronavirus pandemic itself, especially in the US. read more

Florida case count rips through markets and sends USD lower

Florida case count rips through markets and sends USD lower

The dollar has started the week on the back foot in both G10 and EM spaces this morning after news from Florida ripped through markets. The numbers from the sunshine state are staggering and put Florida in fourth place internationally for the largest daily increase in cases, behind the US, Brazil and India. read more

DKK taken for a ride on the dollarcoaster

DKK taken for a ride on the dollarcoaster

The Danish krone bounced back from its 3-day low against the dollar this morning after tumbling by over 0.90 percentage points following a fall in general risk appetite, with equities in the US falling and treasuries rising. read more

Measuring China’s rebound: Q2 GDP due on Thursday 16th

Measuring China’s rebound: Q2 GDP due on Thursday 16th

Since the economic shock in Q1, the road to recovery has been relatively smooth by current standards, although a minor outbreak in Beijing is likely to have shaken consumer sentiment, while flooding in southern China hampered agricultural output. read more

CAD labour market data

CAD labour market data

While expectations sit at a 700K rise in employment and a reduction in the unemployment rate from 13.7% to 12.1%, it must be noted that last month’s employment gain still resulted in a rise in the unemployment rate due to the number of workers re-entering the workforce. read more

Fiscal snapshot gives transparency to markets

Fiscal snapshot gives transparency to markets

Finance Minister Bill Morneau's fiscal snapshot this afternoon has helped extend the loonie rally as the dollar broadly weakens towards the back-end of today's session. Additionally, the Canadian government bond curve bear steepened as issuance numbers are set to rise at unprecedented rates; the 30Y yield rose 7.68bps vs the 1.5bp rally in the 2-year yield. read more

Sunak delivers crowd-pleasing trifecta, but reduces the pace of fiscal stimulus from “warp speed”

Sunak delivers crowd-pleasing trifecta, but reduces the pace of fiscal stimulus from “warp speed”

Rishi Sunak has delivered a trifecta of crowd-pleasing measures in the summer statement, but has nonetheless dialed the pace of stimulus down from its previous “warp speed” setting. read more

Loonie not impressed by BoC Business Outlook Survey

Loonie not impressed by BoC Business Outlook Survey

The loonie steadied near a two-week high against the dollar ahead of the Bank of Canada Q2 business outlook survey and was little changed after the survey was released. The quarterly business outlook survey helps guide monetary policy decisions as it provides a good anecdotal account of conditions in the real economy. read more

Eurozone data releases

Eurozone data releases

The euro's rally from earlier this morning ran out of steam after the morning’s data releases included a sharp expansion in German factory orders and a lower-than-expected improvement in investor confidence in the eurozone.  read more

Confusing data, Yield Curve Control and Canada’s fiscal “snapshot”

Confusing data, Yield Curve Control and Canada’s fiscal “snapshot”

The confusing subtleties of data releases during lockdown and the shift to alternative data, the Fed’s reluctance to begin yield curve controls, Canada’s upcoming fiscal deficit projections and labour market release, and finally inflation data in the EM space. read more

Empty-handed BoJ to set the tone for a mildly strengthened JPY

Empty-handed BoJ to set the tone for a mildly strengthened JPY

Looking forward, our FX market analysts expect the Japanese yen to continue trending to the upside against the US dollar, while the trading ranges remain tight. read more

Labour day in US could reduce volumes, but Covid cases will still be watched globally

Labour day in US could reduce volumes, but Covid cases will still be watched globally

The dollar is trading mixed against the G10 this morning, but that could all change should the Covid data deteriorate further.  read more

Sterling is not an EM currency – But pre-Brexit exchange rates remain a distant dream

Sterling is not an EM currency – But pre-Brexit exchange rates remain a distant dream

The pound is likely to rally with the rest of the G10 against the US dollar as the global economy undergoes a gradual and inconsistent re-opening. read more

Canada GDP: The worst economic monthly contraction on record

Canada GDP: The worst economic monthly contraction on record

The relative accuracy of the median forecast and the positive advanced Canadian May GDP reading, meant that the currency market passed the release by in a risk-off session that would have lapped up a negative surprise. read more

US Covid curve steepens, dollar to rise or fall?

US Covid curve steepens, dollar to rise or fall?

If the US economy underperforms its global peers in Q3 due to a severe domestic second wave, will the dollar continue to strengthen on haven demand? With FOMC minutes and US jobs data out this week markets will have plenty of impetus to ponder the question. read more

Dollar opens on back foot as domestic turmoil and virus counts rise

Dollar opens on back foot as domestic turmoil and virus counts rise

The US dollar has opened today very much on the back foot, with the entire G10 group of currencies up on the day. Reports of coronavirus vaccine progress may also be bouying risk appetite in general, and therefore reducing demand for the greenback as a safe haven. read more

Swift recovery in copper prices bodes well for ZMK

Swift recovery in copper prices bodes well for ZMK

The Zambian Kwacha enjoyed a relative patch of stability in January and February 2020  following significant tightening of the central bank’s monetary policy in November and December 2019. read more

Yuan to trade back to 7.00 but signs of stress remain

Yuan to trade back to 7.00 but signs of stress remain

While China’s economy was the first to experience lockdown measures due to it being the epicenter of the pandemic, it was also one of the first countries to flatten the curve. After contracting 6.8% in Q1 due to the lockdown measures rolled out nationally, the Chinese economy is set to rebound at a rapid pace in Q2. read more

Czech National Bank leaves key rate at the expected 0.25%

Czech National Bank leaves key rate at the expected 0.25%

Markets barely flinched at today’s decision by the Czech National Bank to leave its 2-week repurchase rate at 0.25%, as the move was fully priced in – all economists who provided Bloomberg with an estimate of today’s decision expected the Bank to keep rates on hold. read more

Dollar pares back gains after Donald Trump reaffirms trade agreement

Dollar pares back gains after Donald Trump reaffirms trade agreement

After falling against most of its G10 peers yesterday on hopes of recovery, the dollar had a bumpy ride this morning and whipsawed back and forth following comments from US trade adviser Peter Navarro. read more

Bank of England continues QE, but takes things down a notch from “Warp 10”

Bank of England continues QE, but takes things down a notch from “Warp 10”

The MPC has kept rates unchanged while expanding QE by £100bn, with an intention to reach the allotted asset purchases by the end of this year. In the minutes, members were cautiously upbeat about how bad the initial covid-19 shock to the UK and global economy has been. read more

NOK rises to 1-week high vs euro after Norges Bank announcement

NOK rises to 1-week high vs euro after Norges Bank announcement

The Norwegian krone ripped higher by just under a percentage point against the euro this morning, reaching a 1-week high after the Norges Bank raised its implied rate path for 2023 along with its forecasts for economic growth and core inflation for this year. read more

NBP kept rates on hold as QE remains the focus

NBP kept rates on hold as QE remains the focus

After having cut interest rates by a total of 140 basis points between March and May, the National Bank of Poland kept its benchmark rate unchanged yesterday at 0.10%, in line with the forecasts of all economists surveyed by Bloomberg. read more

The Swedish krone recovers after hitting rock bottom

The Swedish krone recovers after hitting rock bottom

As a result of the pandemic, the Swedish Government has taken a number of measures amounting to more than SEK 100bn to limit both the rate of infection and the economic consequences. read more

Markets buoyed by Fed’s advance into corporate debt 

Markets buoyed by Fed’s advance into corporate debt 

The dollar traded with a negative correlation to risk appetite in general and US equities, in particular yesterday, with the decisive move lower in the greenback happening as US equities rallied after the Federal Reserve said it would commence corporate debt purchases. read more

The BoE to step up QE firepower amid looming economic risks

The BoE to step up QE firepower amid looming economic risks

Since the beginning of June, sterling has taken a leg higher on the back of improved global risk sentiment amid easing lockdown measures and economic resumption. The currency rallied for 10 consecutive days against the USD to a three-month high, the longest rising streak since 2012. read more

BRL has ample room to recover while domestic and external risks abound

BRL has ample room to recover while domestic and external risks abound

The real has recovered around 40% of the lost ground since the beginning of the year, despite the grim domestic economic outlook and the poorly managed pandemic situation. read more

USD softens as the FOMC is expected to err on the side of caution in today’s meeting

USD softens as the FOMC is expected to err on the side of caution in today’s meeting

This morning, the gauge of the dollar dropped to a three-month low ahead of the Fed announcement. The Federal Reserve is unlikely to trigger any policy moves at today’s meeting and is expected to set a transitioning tone. read more

The Fed stands ready to switch to speedy recovery mode

The Fed stands ready to switch to speedy recovery mode

While the debate on negative interest rates is broadly at ease after Fed officials cooled down expectations, the central bank continues to expand firepower under several facilities to money markets, municipalities and credit markets as the economic outlook clears out. read more

All eyes are on Wednesday’s Federal Reserve announcement 

All eyes are on Wednesday’s Federal Reserve announcement 

While the economic calendar is far from empty for the US this week, all eyes are turned to the Federal Reserve meeting that takes place on Tuesday and Wednesday. read more

Things may start to brighten up for NOK as markets move out of the pandemic panic

Things may start to brighten up for NOK as markets move out of the pandemic panic

After being hit by the double whammy of a strengthening dollar and a collapse in oil markets, the Norwegian krone became the worst performing G10 currency in the year to date.  read more

ECB boosts pandemic firepower while passing the ball to fiscal policy’s court once again

ECB boosts pandemic firepower while passing the ball to fiscal policy’s court once again

The ECB delivers on market expectations and steps up the total amount of quantitative easing under PEPP purchases by €600 billion. The rise outperformed the consensus call by at least some €100 billion, bringing along a stronger-than-expected market reaction. read more

Loonie breaks out of post-Covid range but the sustainability of the rally is faced with a multitude of risks

Loonie breaks out of post-Covid range but the sustainability of the rally is faced with a multitude of risks

With social consumption collapsing, unemployment set to increase to levels above 2008-09, and the oil market in a state of tatters, the aggressive coordinated stimulus response from the Bank of Canada and Trudeau administration failed to prompt a recovery in the loonie. read more

Another round of UK-EU trade talks starts today after weeks of little progress

Another round of UK-EU trade talks starts today after weeks of little progress

The UK and the EU will start another round of negotiations today to try to reach a trade agreement, but each side has been blaming the other for the lack of progress so far. This morning, the pound continued its rally and saw another swathe of strength in the buildup to the trade talks. read more

ECB is set to recharge batteries once again

ECB is set to recharge batteries once again

The ECB is widely expected to bring further action in its next policy meeting on June 4th. In the April meeting, the ECB reinforced its readiness to increase the size and flexibility of the €750bn PEPP launched in March. read more

The dollar’s safe haven appeal wanes as markets remain unmoved by Trump comments

The dollar’s safe haven appeal wanes as markets remain unmoved by Trump comments

The main trigger for markets moving out of the greenback and into other currencies comes from improved market confidence, after US President Donald Trump’s threats to China did not strike to the degree that markets had feared earlier last week. read more

ZAR rallies in May on renewed risk appetite

ZAR rallies in May on renewed risk appetite

The South African rand sits atop the EM currency board for May, joining fellow carry currencies MXN and RUB. Increased fiscal and monetary support, combined with the relaxation of lockdown measures in major markets have improved the outlook for the global economy in the short-run. read more

Progression of EU stimulus to remain key EURUSD driver as political tensions now measured

Progression of EU stimulus to remain key EURUSD driver as political tensions now measured

The total financial firepower embedded in the EU budget is proposed to amount to €1.85 trillion, with the Next Generation EU fund of €750 billion to target the pandemic crisis, adding on top of the long-term EU budget for 2021-2027. read more

Aussie dollar enjoys tailwinds from gentle shock to economy and RBA aversion to negative rates

Aussie dollar enjoys tailwinds from gentle shock to economy and RBA aversion to negative rates

The modest domestic outbreak, the RBA’s relative aversion to negative rates, and the inherently high sensitivity of AUD to risk appetite and global growth, mean AUD has good prospects to perform well relative to both USD and the G10 basket. read more

The Mexican peso pares back losses on risk-on sentiment while the economic collapse is broadly priced in

The Mexican peso pares back losses on risk-on sentiment while the economic collapse is broadly priced in

The Mexican economy shrank by 1.2% in Q1 on a quarterly basis, or 1.4% when compared with last year's same period (not seasonally adjusted). read more

Upbeat market mood drives currency markets in the absence of US-China headlines

Upbeat market mood drives currency markets in the absence of US-China headlines

Headlines have taken a break from the US-China tensions this morning, but any developments between the two nations may turn risk sentiment upside down. read more

National People’s Congress drop GDP target but Hong Kong bill destroys markets risk appetite

National People’s Congress drop GDP target but Hong Kong bill destroys markets risk appetite

With tensions rising again between the US and China after the Senate passed a bill to restrict semiconductor trade with Huawei, the latest measures taken by Beijing could see another collapse in US-Sino relations. read more

Sterling underperforms in May as idiosyncratic risks mount

Sterling underperforms in May as idiosyncratic risks mount

After a poor performance so far in May, sterling is lagging most of its peers in the G10 group of currencies, with only the New Zealand dollar and Norwegian Krone registering bigger losses against the dollar so far this year.  read more

SARB matches TCMB with a 50bp cut

SARB matches TCMB with a 50bp cut

At mid-day today, the Turkish central bank (TCMB) cut interest rates by 50bps from 8.75%, which fell in line with our expectations and the market's median projection. This afternoon the SARB followed in the TCMB's footsteps, cutting rates by 50bps to a record low of 3.75%, as continuing lockdown measures erode inflation and expand the output gap.  read more

USD bounces back as US-China tensions continue to rise

USD bounces back as US-China tensions continue to rise

Easing of lockdown measures has been the main driver of improved risk appetite, but this has broken down overnight after the Senate overwhelmingly approved legislation that could lead to Chinese companies such as Alibaba Group Holdings Ltd and Baidu Inc being barred from listing on US stock exchanges. read more

USD weakness continues as G10 makes inroads

USD weakness continues as G10 makes inroads

Broad US dollar weakness has been the theme of this week’s trading thus far. Today, the kiwi dollar leads gains in the G10 space as the New Zealand government dramatically eases lockdown restrictions. read more

Dollar weakening as optimism remains in markets 

Dollar weakening as optimism remains in markets 

The dollar spent another session declining yesterday as optimism was plentiful in markets. Little reaction from China over the latest Huawei restrictions has reduced the markets’ concerns over a potential re-emergence of the trade war. read more

G10 in Green as Powell and Mnuchin head to Capitol Hill

G10 in Green as Powell and Mnuchin head to Capitol Hill

USD is lower against most major currencies today, with JPY the sole loser among the G10. The week’s biggest new so far remains yesterday’s proposal for a mutual Eurozone recovery fund by the German and French Governments. read more

Dollar weakens despite another phase of US-China trade war looming

Dollar weakens despite another phase of US-China trade war looming

The dollar continues to trade weaker in today’s session despite news of rising US-Sino tensions after the US imposed restrictions on semiconductor sales to Chinese telecommunications company Huawei. Additionally, comments from White House trade advisor Peter Navarro add to the growing complaints from the Trump administration over China’s containment of the pandemic. Although the potential for another phase of the US-China trade war is likely, markets continue to trade in a risk-on mood as major global economies start to scale back lockdown measures. WTI is back above $30 a barrel, boosted further by comments from China, while Angela Merkel and Emmanuel Macron are set to announce a new Franco-German initiative this afternoon at 16:00 BST. Elsewhere, comments from the Bank of England’s chief economist, Andy Haldane, regarding negative interest rates and other unconventional monetary policy tools put the pound lower this morning. However, this didn’t last with the dollar continuing its losses and now GBPUSD sits near 0.5% higher on what is broadly a quiet day for markets.   G10 broadly rallies against a softer dollar despite US-China trade tensions threatening to rear their head again US-China trade tensions are re-emerging as a trending topic in markets as the US administration increases the tone of accusations over China's active role in the global outbreak of the pandemic. The US has already taken action last week, after it prevented foreign chipmakers using US technology from supplying components to Huawei or any of its 114 subsidiaries without a license. The move is intended to curtail the company's ability to produce its own chips for smartphones on the basis of Huawei´s close ties to the Chinese government posing a threat to US national security. Chip manufacturing makes up for nearly 90% of the company's overall revenue. China threatened retaliation on this and further moves, with a state-run newspaper hinting on a series of countermeasures without further detail. The restrictions may freeze the entire chipmaking industry because of its wide use of US fabrication plants. While recent institutional frictions within the EU and re-emerging US-China trade tensions have put a lid to the euro price action, gradual reopening plans have kept the single currency supported above 1.08 level. As the number of new cases and fatalities falls across the eurozone, the region is gradually moving towards easing lockdown restrictions, although at different paces. In Italy, the worst hit country, retail businesses are open as of today with strict social-distancing precautions. The reopening date for bars, restaurants and hair salons was also moved to today from June 1st However, according to the Confcommercio retail lobby, one in ten Italian businesses is at risk of failing, amid criticism that state help hasn't reached small businesses as promised. A move deemed as a “calculated risk”by Prime Minister Guiseppe Conte, Italy eyes the reopening of domestic and international borders on June, 3rd; while sports centres and theatres are planned for reopening on May, 25th and June 15th respectively. In Spain, the government has kept its phasing out program of the national lockdown, with the Valencia region joining the half of the country already in phase one. Some islands will enter the second of four phases as well. However, the government is seeking support in Parliament to extend the state of emergency by an extra month , set to end on May 23rd, which major opposition parties refuse as they seek alternative options for managing the easing of lockdown. Portugal launches the second phase of the scaled-sector plan as of Monday, where restaurants, museums and coffee shops are included at reduced capacity. Headlines broke this morning that a scheduled meeting between French President Emmanuel Macron and German Chancellor Angela Merkel will take place later today at 3:30pm Paris time. The agenda for the meeting hasn´t been disclosed yet but will likely include a discussion on the European recovery fund, along with a range of topics covering public health, green and digital transition and industrial sovereignty. The two countries have lead opposing positions on the EU joint policy response to the pandemic, with Germany largely refraining from the issuance of collective “coronabonds” proposed by France. The European Commission recently hinted at the prospects for a softer aid plan, in which some of the intended €2 trillion fund would be delivered as grants to member states, as opposed to loans. The euro is modestly abandoning the range-bound price action from this morning, in hopes of crucial guidelines to emerge from today's meeting. Reporters will have access to the meeting details at 16:00 BST. Sterling was pushed into negative territory this morning as the bank of England’s chief economist, Andy Haldane, told the Telegraph newspaper that the UK is heading towards an unemployment crisis comparable to that of the 1980’s, while the central bank is considering negative interest rates and unconventional tools. The commentary pushed overnight interest rate swaps to price a negative bank rate as early as December’s meeting. Haldane made similar comments to the same newspaper back in 2015, but with both Governor Bailey and Deputy Broadbent vocally dispelling the likelihood of negative rates it still remains a distant possibility. Additionally, this week the pound faces UK public sector borrowing data on Friday. Expectations suggest borrowing is expected to come in at around the £20bn mark for April, with considerable upward revisions to come in the future to both the March and April debt. This comes after the country’s fiscal watchdog said that in the scenario where the UK remains in lockdown for the whole of Q2, resulting in the economy contracting 35% QoQ, that the fiscal deficit would rise from £218bn to £273bn in FY20. This would result in a fiscal deficit of around 14% of GDP - the highest since World War II and 4% higher than the peak of the financial crisis. With this in mind, the Chancellor of the Exchequer Rishi Sunak is set to face questions in Parliament between 14:25 - 16:00 BST after extending his job retention scheme until October last week. Markets can expect questions to focus on how the government aims to finance the ever-increasing fiscal deficit. WTI is at a two-month high after production data shows a sharp drop in both OPEC+ and North America, while Chinese officials announced that oil demand is almost back at pre-virus levels. OPEC+ is well on the way to slashing output as reports suggest 9.7m barrels per day of output have already been scaled back. Additionally, data out of North America shows production in the US has reduced by 1.5m bpd, with a 700,000bpd fall in Canada. US exports of oil is also estimated to have fallen 15% since the collapse in prices. Over the weekend, Swiss National Bank Governing Board member Andrea Maechler highlighted the SNB’s increased efforts to offset market forces as CHF continues to appreciate on haven flows. The comments follow that by SNB Governor Jordan, which have also been supported by data on sight deposits - a proxy for the central bank’s intervention in FX markets to weaken the franc. Maechler avoided questions about the SNB directly defending the 1.05 level on EURCHF, stating that the central bank takes the general foreign exchange situation into account, but the market has failed to drive below it despite multiple attempts. Today’s sight deposit data suggests this may be the threshold for the SNB as CHF4.4bn was added to the SNB’s balance sheet in the week ending May 15th.   WTI crude prices break the $30pb mark for the first time in one month in thinner trade volumes   The euro gains some traction ahead of the Macron-Merkel meeting this afternoon SNB steps up the pace of FX intervention as it resists further franc appreciation   Authors: Simon Harvey, FX Market Analyst Olivia Alvarez Mendez, FX Market Analyst     DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Negative rate expectations in focus as central banks prominent for the week ahead

Negative rate expectations in focus as central banks prominent for the week ahead

The main focus for markets, and for central bank communique, has been increasing speculation that major central banks such as the Fed and BoE would be forced to cut interest rates into negatives. read more

Negative rates in focus as US-China tensions rise to the surface

Negative rates in focus as US-China tensions rise to the surface

The dollar is trading mixed against the G10 this morning as markets gauge the building tensions between the US and China. The Trump administration took it a step further and suggested that Beijing sent airline passengers to spread the virus globally. read more

Negative rates and Trump-China chat put markets on edge

Negative rates and Trump-China chat put markets on edge

The dollar has remained on the offensive today, as central bankers focus on managing increasing speculation in financial markets that major central banks such as the Fed and BoE may be forced into negative rates. read more

USDSGD unlike to move below 1.40 without broad USD weakness 

USDSGD unlike to move below 1.40 without broad USD weakness 

While the Singapore dollar can trade within an undisclosed band, the tweaks to the exchange rate policy suggests USDSGD may struggle to break the 1.40 level. This is in part due to the premium the SGD has regained over its Asian peers since the March sell-off. read more

Monetary stimulus remains focus for markets with Bailey next up on the wires 

Monetary stimulus remains focus for markets with Bailey next up on the wires 

Bank of England Governor Andrew Bailey will give a webinar at 11:30 GMT, having yesterday once again reiterated to ITV that the Bank was likely to expand asset purchases in the near future. read more

UK GDP data shows early signs of damage while the Fed is back in focus

UK GDP data shows early signs of damage while the Fed is back in focus

UK macro data in Q1 brought a modest unexpected boost to the pound, as the figures showed a relatively more resilient economy than expected amid initial coronavirus shock. Despite the initial positive surprise in the headlines, investors are left with a grim picture. read more

G10 mixed as markets focus on Powell’s upcoming speech

G10 mixed as markets focus on Powell’s upcoming speech

Today markets will keep a close eye on Fed Chair Jerome Powell’s online conference today at 14:00 BST on current economic issues. Any comments on negative rates, as well as on general further stimulus measures, will be closely watched. read more

FX trades with nervous tone amid fragile risk appetite

FX trades with nervous tone amid fragile risk appetite

G10 FX has traded with a nervous tone so far this week, as yesterday’s broad dollar strength has given way to selling today, with price action following a roughly “risk on” pattern. read more

Fed officials express apprehension about negative interest rates 

Fed officials express apprehension about negative interest rates 

Senior Federal Reserve policymakers Raphael Bostic and Charles Evans both made comments suggesting they were opposed to or did not anticipate negative interest rates in the US, ahead of a major speech from Fed Chair Jerome Powell tomorrow that may touch on the subject. read more

Dollar gains momentum amid fragile risk sentiment

Dollar gains momentum amid fragile risk sentiment

Risk appetite is still looking fragile today, after the US dollar has rallied from an early-morning sell-off. Among the G10 currencies NOK and CHF are the best performers. read more

Will the RBNZ go negative?

Will the RBNZ go negative?

Since the Reserve Bank of New Zealand's last formal Monetary Policy Statement in February, the Bank has engaged in a full suite of crisis response measures, similar to those undertaken by the Federal Reserve, RBA, and Bank of England. read more

Banxico to cut with prudence

Banxico to cut with prudence

Since the global outbreak of coronavirus in March, the Bank of Mexico has carried out two consecutive interest rates cuts of 50 basis points each in between meetings. read more

G10 FX opens the week quietly amid ongoing improvement in risk appetite

G10 FX opens the week quietly amid ongoing improvement in risk appetite

The dollar is trading with a mixed tone this morning; risk appetite has slightly improved and pushed riskier currencies like NOK, AUD and CAD in the green against the US dollar, but dollar price action against other currencies in the G10 basket makes for a less straightforward story.  read more

BoE keeps key rate and asset purchases unchanged

BoE keeps key rate and asset purchases unchanged

Sterling is trading higher this morning, after the Monetary Policy Committee of the Bank of England voted 7-2 to keep asset purchases unchanged, in a decision that also kept the official interest rate unchanged at 0.1%. read more

BoE decision to avoid more QE is trivial, and forecasts look a touch optimistic

BoE decision to avoid more QE is trivial, and forecasts look a touch optimistic

The Bank of England has followed the OBR in rebranding their forecasts as an “illustrative scenario”, a change of language that reflects the extent to which the forecasts are conditional on changeable assumptions. read more

Turkish Lira joins the EM “record low” club

Turkish Lira joins the EM “record low” club

Despite the Central Bank of the Republic of Turkey's (CBRT) best efforts, the lira's breach of the 7.00 level against the dollar last Friday has been extended past its 2018 crisis low in this afternoon's session. read more

Euro struggles amid poor EC forecasts, ongoing ECB legal drama

Euro struggles amid poor EC forecasts, ongoing ECB legal drama

Today’s headlines are marked by the ongoing story of the German Federal Constitutional Court’s ruling that the European Central Bank must provide justification for its QE program within three months. The program in question is the Public Sector Purchase Program (PSPP) and would no longer have support from Bundesbank if the ECB fails to provide satisfactory justification for the program in the given time. The danger lies in the fact that unless the ruling is completely dismissed and the ECB finds the means to provide information that the Court is willing to consider, the ECB’s independence is in danger of being. The question now is whether the ECB will accept the jurisdiction of the German Court, and if that translates in saying that national courts can review monetary decisions. At this point, the ECB has not explicitly stated whether or not it has plans to comply, however, ECB Governing Council member Madis Muller sounded conciliatory this morning and stated that the central bank is “certainly able” to show its measures were proportionate, a key requirement the GFCC set out. Bundesbank President Jens Weidmann said to the German newspaper Die Zeit that the extraordinary measures enacted by the ECB were necessary to support the eurozone economy, but at the same time, the GFCC ruling is justified and the barrier between monetary financing and quantitative easing should be contained. The euro is still trading on the back foot since yesterday’s announcement by the Court, but even in the longer run, the situation may be enough reason for the euro to lose its footing as it may set the stage for other judicial systems in rejecting ECB rules.   EURUSD struggles to recover after GFCC decision European Commission releases gloomy economic forecasts In one line, the European Commission foresees a deep and uneven recession in the euro area that will bottom out in Q2, with a highly uncertain recovery path ahead. Overall, real GDP in the Eurozone is expected to crash by 7.7% in 2020, far deeper than the 4.3% in the 2009 recession during the financial crisis. Output will be severely hit in the second quarter of the year, clearing prospects for the worst economic recession in EU history. GDP growth is expected to rebound by an annual pace of 6,3% in 2021, leaving the EU economy 3% behind the pre-crisis estimated output level. This means that, even when the bounce back will likely be more sharp and quick than in the financial crisis in 2009, the recovery will be incomplete over the forecasting horizon. A few patterns to highlight: The recession will break through all economic sectors, although the biggest hit will likely land on the services sector and tourism in particular. The economic collapse and further recovery will hit across all economies within the area but in an uneven manner. Among the largest member states, the projected rebounds are more asymmetric than the expected declines, with Italy and Spain –the worst hit by the pandemic- experiencing worse recoveries. All demand components will be dragging severely on GDP growth, with the exception of public consumption and investment, which are set to play a counter-cyclical role. Private consumption should be the fastest to recover after a record drop in Q1, but uncertainty in the labour market will likely increase precautionary savings. The expected rebound of euro area investment next year should only help to recover some of the lost ground, with a projected shortfall of 6% compared to baseline estimates before the crisis for the year end. Net exports will add only a small contribution to growth, also meaning that the euro will receive only a mild boost from current account pressures. The path of recovery outlined contains unprecedented levels of uncertainty, given the nature of the underlying assumptions. Should any of the conditions divert from the given guidelines, forecasts could widen substantially, with risks mostly tilted to the downside. As per the currency standpoint, this could imply an ample degree of volatility, although it should be partly reduced by appropriate liquidity provision and monetary policy response towards preserving financial stability.   Projected real GDP growth path in the Euro area     Authors: Olivia Alvarez Mendez, FX Market Analyst Ima Sammani, Junior FX Market Analyst   DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

EUR drawing all attention while pound crashes on construction PMIs

EUR drawing all attention while pound crashes on construction PMIs

The euro sharply fell against the dollar yesterday and has managed only a minor recovery since then, after a ruling from Germany’s Constitutional Court that the European Central Bank’s QE programme violates the ECB’s mandate under EU law. read more

SNB may be forced to cut rates as EURCHF fails to break 1.06 as sight deposits rise

SNB may be forced to cut rates as EURCHF fails to break 1.06 as sight deposits rise

In the current Covid-19 environment, the Swiss franc has seen considerable pressure from safe haven inflows which are unlikely to abate until the global economy starts to show signs of recovery. read more

German constitutional court ruling casts shadow of doubt over ECB

German constitutional court ruling casts shadow of doubt over ECB

The euro is among the worst performers in the G10 today, after Germany’s top constitutional court ruled on a suit against the ECB. The German Federal Constitutional Court ruled in a 7-1 decision that the ECB had not violated treaty prohibitions against monetary financing, which were the core of the claim. read more

Risk aversion continues to drive markets on renewed US-China tensions

Risk aversion continues to drive markets on renewed US-China tensions

With the global economy sitting in a fragile state due to the impacts of COVID-19, news from Europe that Italy will ease lockdown measures for manufacturing and construction sectors starting today would normally equate to a brief euro rally. read more

Bank of England to shift focus to liquidity support

Bank of England to shift focus to liquidity support

Thursday’s Bank of England meeting will mark a shift in priorities for the Monetary Policy Committee. At March’s extraordinary meeting on the 19th, the main objective was to restore functioning in UK financial markets, especially gilts, and preventing further tightening in financial conditions. read more

Trump’s tariff talk takes US dollar higher

Trump’s tariff talk takes US dollar higher

US President Donald Trump’s threats to reignite the US-China trade war has triggered a risk-off move across markets in this morning’s session, with the FTSE 100 falling 2.5% in London and the Nikkei index sliding by over 2.8% in Japan on Friday. read more

How do you say “whatever it takes” in French?

How do you say “whatever it takes” in French?

The ECB has kept its asset purchase program unchanged, but has tweaked its Long Term Refinancing Operations to make them more appealing to banks while also announcing a new facility, the Pandemic Long Term Refinancing Operations. read more

Quiet G10 session sees dollar weaken further as ECB steps into gap left by European leaders

Quiet G10 session sees dollar weaken further as ECB steps into gap left by European leaders

The dynamic loosely remains one of improving risk appetite: on the day, EUR and JPY are among the worst performers, GBP and SEK the best. Conditions in interbank lending markets appear to be showing a marked improvement. read more

USDZAR Note

USDZAR Note

The South African rand was one of the worst-performing currencies in the expanded majors during March as the dollar reigned supreme in the global flight to safety. The rand depreciated nearly 16% against the dollar and 15.8% against the euro in March. read more

ECB steps up to the plate after eurozone leaders under-deliver on virus response

ECB steps up to the plate after eurozone leaders under-deliver on virus response

The European Central Bank meeting will be in the spotlight today, with the rate decision being released at 12:45 BST and followed by a press conference at 13:30 BST. read more

The ECB is urged to “fill the gap” in the Eurozone

The ECB is urged to “fill the gap” in the Eurozone

Since the beginning of the coronavirus crisis, the European Central Bank has delivered a relatively rapid response to the economic challenges, mainly focusing on credit conditions. read more

USD continues to trade on backfoot after negative GDP reading with FOMC in scope 

USD continues to trade on backfoot after negative GDP reading with FOMC in scope 

Today marks the beginning of this week’s data calendar for the US, with the advanced reading of Q1 GDP and the first Federal Reserve meeting since rates were lowered to the zero lower bound in successive inter-meeting announcements in March. read more

Tension is mounting ahead of FOMC decision

Tension is mounting ahead of FOMC decision

With today’s Fed announcement, no further reductions in rates are expected as the FOMC has already cut rates close to zero and Fed Chair Jerome Powell stated earlier last month that he does not see negative policy rates as “likely to be an appropriate policy response here in the United States”. read more

USD hammered amid broad risk-on move

USD hammered amid broad risk-on move

As always it’s tempting to look for meaning in intraday price action. The most likely explanation of today’s dollar weakness seems to be a broad improvement in risk appetite. read more

Markets consider re-opening of economies as USD softens

Markets consider re-opening of economies as USD softens

The dollar was caught on the back foot yesterday as developments in the APAC area sparked a mild risk-on mood in markets. Exit strategies in parts of Australia and increasing monetary stimulus measures from the Bank of Japan shaved off some of the fear regarding global growth. read more

APAC news causes risk rally in otherwise quiet markets

APAC news causes risk rally in otherwise quiet markets

Little has changed from this morning’s session as markets still trade off of headlines that the Bank of Japan will increase their QE program, Australia will begin to relax lockdown measures, and the worst affected European nation’s eye exit plans. read more

FOMC meeting: no action, but plenty to think about

FOMC meeting: no action, but plenty to think about

Jerome Powell and the FOMC are entitled to at least a tentative note of self-congratulation at this week’s meeting, on Wednesday, as so far the Fed’s measures in response to the covid-19 crisis appear to be having their desired effect on the US economy and financial markets. read more

G10 rallies against USD as APAC news boosts growth sentiment

G10 rallies against USD as APAC news boosts growth sentiment

The dollar trades on the back foot this morning as the global coronavirus curve continued to flatten over the weekend, enabling governments to begin eyeing up exit plans. read more

COVID-19: Global Policy Responses

COVID-19: Global Policy Responses

Since the outbreak of the coronavirus in late December, COVID-19 has rapidly spread across the globe with nearly 3 million cases confirmed.  With this in mind, we have kept a track of all of the fiscal and monetary measures put in place by governments and central banks in the G10 since the onset of the virus. read more

No PMI Panic

No PMI Panic

This morning’s purchasing managers indices for the eurozone and UK were by far the worst on record, confirming an unprecedented economic slowdown across the region’s major economies. read more

MXN unaltered by Banxico’s emergency move

MXN unaltered by Banxico’s emergency move

The Bank of Mexico stepped in yesterday with a unanimous inter-meeting decision to cut the benchmark interest rate by 50 basis points to 6%. read more

US dollar weakens as Emerging Markets leads advances

US dollar weakens as Emerging Markets leads advances

While oil markets continue to draw the focus of markets today, risk sentiment has improved dramatically. In the G10, GBP and AUD lead the way in reclaiming ground lost earlier in the week while the dollar softens across the board. read more

ZEW Survey Current Assessment and Expectations

ZEW Survey Current Assessment and Expectations

The headline ZEW expectations index surged to 28.2 in April, following a dismal reading of -49.5 in March and overshooting Bloomberg's median forecast at -42.0. The assessment of the current situation printed -91.5, far below the forecasted -77.5 and the prior reading of 43.1.  The divergence between the current situation and the expectations has not been this large since the global financial crisis. With lockdown measures in full effect through April and eurozone countries making plans to gradually reopen the economy in the coming months, there are reasons to hope things won’t get much worse for the region. The timing of the easing of containment measures will be key in determining the recovery path. EURUSD saw a modest drop around the time of the release, but the many different factors in play at the moment make it nearly impossible to pinpoint the price action down to one event. Other factors, such as demand for the US dollar and crude oil volatility are also in play today.   EURUSD slightly drops around the time of the data release   ZEW Germany headline index, assessment of current situation vs 6-month expectations of economic growth   Author: Ima Sammani, Junior FX Market Analyst     DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Oil slide more widespread keeping USD well bid

Oil slide more widespread keeping USD well bid

Dynamics in oil markets continue to dominate FX market pricing today. After yesterday's headline-grabbing slide in WTI, which saw May delivery prices dive deep into negative territory, oil markets remain on the back foot and with more meaningful consequences for FX. read more

NZD enjoys boost on easing of lockdown measures

NZD enjoys boost on easing of lockdown measures

This weakening of binary risk on/risk off dynamics may create trading conditions in G10 FX more conducive to idiosyncratic drivers such as economic and virus data. read more

A week of data beckons as markets weigh how long “risk on, risk off” dichotomy can dominate FX

A week of data beckons as markets weigh how long “risk on, risk off” dichotomy can dominate FX

Broad risk-on/risk-off moves have dictated FX price action for the past few weeks, with the US dollar strengthening with deteriorations in risk appetite, and weakening with improvements. read more

US Job claims suggest COVID-19 wipes out financial crisis recovery 

US Job claims suggest COVID-19 wipes out financial crisis recovery 

Today’s jobless claims data from the US saw another dramatic rise in the number of unemployed persons claiming insurance benefits. The 5.245m number of claims registered in the week ending April 11th has seen the aggregate number of job losses, if this is a true measure, erase the employment gains made since the global financial crisis. The data followed a 6.62m increase in claims the week prior, pushing the four-week sum to 22m filings compared to the 21.5m jobs added during the economic recovery beginning June 2009. The US dollar has gone mildly bid in markets following the release as risk sentiment continues to drive market pricing. However, despite today’s data highlighting a dramatic collapse in the US labour market, with the advanced seasonally adjusted unemployment rate rising to a record high of 8.2% for the week ending April 4th, it isn’t necessarily an accurate representation of the real economy. Below, we highlight some of the reasons for this which include; the loss of output from those leaving the job market altogether therefore not claiming unemployment benefits, system failures in states, backlogs in processing and the impact of the CARES act. State data for week ending April 4th: Georgia (+256,312), Michigan (+84,219), Arizona (+43,488), Texas (+38,982), and Virginia (+34,872) saw the largest rise in claims. California (-139,511), Pennsylvania (-127,037), Florida (-58,599), Ohio (-48,097), and Massachusetts (-41,776) saw the largest falls in claims. A note on US Jobless claims in general The US Jobless claims figure has been one of the most contentious data points during the coronavirus outbreak. While the data is one of the timeliest metrics to assess the impact lockdown measures are having on the US labour market, in turn allowing markets to gauge the effects on consumption and therefore growth, it is subject to a number of quirks. The quirks make it hard for economists to filter through the noise and truly measure the economic impact of social distancing measures in the US via the labour market, but given the lack of timely data markets will still use this as their best nowcast of the US economy. This means that initial jobless claims are likely to continue having an elevated market impact as more accurate unemployment data is compiled. Last week, the initial jobless claims data release saw the number of people claiming unemployment benefits in the week ending April 4th dip trivially to 6,606K from an upwardly revised 6,867K the week prior. The dip in jobless claims was concentrated in Pennsylvania (-143K), Florida (-108K) and Massachusetts (-103K), but recent reports in the Washington Post highlight that the benefits system in states like Florida has led to the state underreporting the true number of claims. Rebecca Vallas reported that the red tape surrounding the state claims system was deliberately designed by the former Governor Rick Scott to “make it harder for people to get and keep benefits so the unemployment numbers were low”. This is supposedly just the tip of the iceberg. System failures nationally have arguably suppressed the true number of new unemployment claims. Reports of system crashes in New York, Michigan and Nevada are also backed up by reports of increased server capacity nationally and extended call center hours beginning next week. The influx of claims and the current backlog suggests that the initial claims data will remain elevated for some time to come as opposed to seeing the data subdue and a corresponding rise in continuing claims. Additionally, the CARES act will now see more claims fall under the official data stemming from unemployment benefits being paid to self-employed and gig economy workers. With the widening criteria of claims, expect the nominal number to remain elevated in the numerous millions for some weeks to follow. While the multitude of factors in play makes it harder to assess the true economic damage, further drawbacks are found in the fact that the claims data doesn’t measure the loss of economic activity from those leaving the labour market all together. In the March household survey, approximately 60% of workers that lost their job were counted as no longer in the labour market because they didn’t want a job or were not looking. Additionally, the structural contraction in the economy is difficult to assess due to the amount of temporary claims crowding out the true structural unemployment rate. Markets know the short-term contraction in the economy is set to be sharp but much of this can be recovered once containment measures are relaxed. The concern is what the longer-term impact to the economy is and to measure that, and in turn the effectiveness of the stimulus measures to counteract it, markets will need to see the noise around the labour market data to subside. While containment policies are in place, the data will continue to be marred with noise and only reflect the short-term economic impact, but it remains the best and most timely measure of economic activity for now. Eurozone Industrial Production data fails to move euro This morning's eurozone industrial output data from February included a sharp contraction of 1.9% on a year-on-year basis and a 0.1% contraction month-on-month, with a decrease in capital and durable goods causing much of the slump. The month-on-month slump is negligible due to the increase in intermediate and non-durable consumer goods, as well as energy production. The data was already hampered in February as the virus had China under lockdown, causing many disruptions in supply chains of trading partners, including the eurozone. With eurozone countries following nationwide lockdowns in March, a sharp downturn in the next data release is a given. Reasonably encouraging purchasing managers' indices from March suggested on the surface the slowdown was particularly sharp, but the PMIs were subject to noise from the inverse effect of the supply delivery times. With some eurozone countries looking at options to gradually revive the economy again, an important question that arises is when factories and companies will resume production. Germany has already announced plans to ease some of containment measures at the beginning of May and will reopen some smaller shops, while Spain will allow workers in manufacturing, construction and some services to return to work from this week onwards. The rest of the Spanish population remains in lockdown. The moment at which countries resume production will be the largest factor in assessing what the lowest point of production will be and will pave the way for a recovery in the eurozone industry. The reaction in FX markets to the data remains limited... As markets are mainly concerned with the shift in risk sentiment that has appeared since this week's collapse in oil markets and renewed safe haven demand for the US dollar. The euro has weakened against the dollar throughout the day, including the moments after the data release, but remained relatively stable against Sterling, signalling that this story is a matter of dollar strength rather than euro weakness. Looking ahead, industrial production data for March and April, combined with the timing of the easing of containment measures will be key in determining the bottom eurozone’s industrial downturn.   Eurozone industrial production vs surveyed values   Eurozone industrial production February 2020 (Covid Crisis) vs January 2009 (GFC)   Mexico’s rating erosion will make it harder for the peso to recover The ratings agency Fitch downgraded Mexican sovereign debt to BBB- from BBB yesterday, just one notch above speculative investment grade, with a stable outlook. The downgrade comes after the coronavirus crisis has dampened the already grim outlook of the Mexican economy and its public debt outlook. The agency now foresees an economic collapse of at least 4% in 2020, while pushing prospects of recovery back to 2021. Despite the fact that the government has not enacted any additional fiscal measures to rescue the economy amid the coronavirus crisis, the economic fallout could represent an increase of the primary deficit as percentage of GDP of some 2.5pp to 4.4%. In turn, this could push the debt-to-GDP ratio above the 50%, a record not seen since the 1980s. Fitch is the second major agency to cut Mexico’s sovereign debt rating in less than a month, after S&P downgraded it to two notches above junk at the end of March. The country is extremely sensitive to further downward revisions by major agencies despite AMLO's austerity stance, as structural growth could be impacted for years to come. According to the OECD's PPP standard, the Mexican peso is currently undervalued by nearly 160%, while the currency has lost over ¼ of its nominal value in less than two months. Even if USD strength starts to ease in the following quarters worldwide, poor domestic fundamentals will hardly help the peso to recover towards its pre-coronavirus levels in the short-to-medium term horizon.   Mexican debt-to-GDP ratio is set to jump to above multi-decade levels amid coronavirus economic collapse     Authors:  Simon Harvey, FX Market Analyst Olivia Alvarez Mendez, FX Market Analyst Ima Sammani, FX Market Analyst     DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

USD rips higher as OPEC+ cuts insufficient to stem global glut

USD rips higher as OPEC+ cuts insufficient to stem global glut

The dollar is broadly higher this morning after risk appetite soured as falls in crude oil prices accelerated. JPY is dominating G10 FX along with CHF, while EM currencies are mostly in the red. read more

Eurozone CPI data

Eurozone CPI data

The euro fell against the dollar this morning after reaching a 10-day high overnight, as French retail sales plunged 24% month-on-month according to data from the Bank of France. read more

Risk appetite continues to improve after Eurozone and OPEC deals, fresh Fed measures

Risk appetite continues to improve after Eurozone and OPEC deals, fresh Fed measures

Markets traded with a relaxed tone this morning, characterised by a modest but continued recovery in risk appetite and easing financial conditions, accompanied by a weaker US dollar. read more

Semblance of calm in FX markets as Europe lockdown persists

Semblance of calm in FX markets as Europe lockdown persists

Lockdown measures in hard-hit countries such as France and Italy will be in focus this week. The UK and EU will return to Brexit negotiations on Wednesday after the lead negotiators on both sides fell ill with Covid-19 last month. read more

US dollar falls amid Fed credit measures, OPEC+ and Eurogroup

US dollar falls amid Fed credit measures, OPEC+ and Eurogroup

The dollar is lower this afternoon, after the Fed announced a raft of aggressive new credit easing measures. On the whole it seems global macro markets are no longer trading in a binary “risk on, risk off” dynamic – this suggests risk appetite on the whole has improved, for the time being. read more

Dollar mixed with key announcements pencilled in for today’s session

Dollar mixed with key announcements pencilled in for today’s session

The main news for the greenback yesterday was the release of the first set of Fed minutes since its dramatic decision to drop rates to its effective lower bound. Today, Fed chair Powell will likely give more clarity to markets with an economic update scheduled via webcast at 15:00BST.  read more

Eurogroup failure sees ominous tightening in European interbank funding markets

Eurogroup failure sees ominous tightening in European interbank funding markets

European finance ministers failed to reach an agreement on a response to the virus pandemic after a marathon 16-hour conference call that went through last night. read more

Risk-on returns as investors eye signs of coronavirus slowing

Risk-on returns as investors eye signs of coronavirus slowing

While the number of fatalities and new confirmed cases continues to pile up, the daily change in both figures have shown consistent evidence that the pandemic curves could be somewhere near to peaking. read more

ZAR hits a record low but rebounds aggressively amid some optimism in global markets

ZAR hits a record low but rebounds aggressively amid some optimism in global markets

The introduction of COVID-19 has exacerbated the economic contraction as South Africa, along with many developed markets, enters an extended containment period which shuts down both manufacturing and social consumption. read more

FX trades with mild risk-on vibe amid signs of virus stabilization

FX trades with mild risk-on vibe amid signs of virus stabilization

G10 and EM FX are trading with a broad risk on vibe this afternoon, with the dollar lower against AUD, NZD, NOK and CAD, and enjoying some modest gains versus JPY and EUR. read more

US dollar pares losses – but no sign of March madness despite a week of awful data

US dollar pares losses – but no sign of March madness despite a week of awful data

The US dollar is broadly higher this week, but at this point, it looks like a recouping of some of last week’s sell-off, as opposed to the beginning of another leg of intense dollar buying of the sort seen in mid-March. read more

Trump makes bold claims of oil production cuts from Saudi Arabia and Russia

Trump makes bold claims of oil production cuts from Saudi Arabia and Russia

Donald Trump continued his extraordinary efforts to support crude oil prices yesterday, by claiming that Saudi Arabia and Russia would cut oil output by 10-15 million barrels. Russian officials were quick to deny that Putin and the crown prince of Saudi Arabia had spoken. read more

Trump tweets send oil skyrocketing

Trump tweets send oil skyrocketing

Donald Trump has sent oil prices and petro-currencies soaring after saying that he hoped Saudi Arabia and Russia would agree to oil production cuts of 10-15m barrels. read more

Sky-rocket US jobless claims dictate FX dynamics today

Sky-rocket US jobless claims dictate FX dynamics today

Yesterday, the DXY dollar index ticked higher on an apparent bounce from last week's losses. The move could be hardly attributed to safe-heaven pressures as per the relaxed, or even positive, performance of most financial conditions indicators. read more

NOK and CAD rise as oil jumped on China’s purchase plan

NOK and CAD rise as oil jumped on China’s purchase plan

While both the krone and CAD are benefitting from the oil rally, the Norwegian krone is leading in the G10 space. NOK's faster recovery compared to the Canadian dollar shows that while oil has been the main character in today's gains. read more

No one knows what to do with the dollar

No one knows what to do with the dollar

The dollar remains bid today, despite a period of relative calm in bond markets, financial conditions, and USD funding markets. This suggests that the dollar strength we have seen this week is not panic buying, but simply a steady demand for greenbacks after last week’s sell-off. read more

Dismal manufacturing PMIs from Hungary push the forint to another record low

Dismal manufacturing PMIs from Hungary push the forint to another record low

The Hungarian forint continues to slide, reaching another record low against the euro this morning in a new wave of selling following dismal manufacturing figures, combined with a global risk-off mood. read more

Markets might get used to ugly data for a while

Markets might get used to ugly data for a while

G10 FX has had an eventful day so far, with the US dollar remaining bid and up against the whole G10 except for NOK. NZD and AUD were in the green briefly in the early hours of the morning after Chinese PMI data printed much better than expected. read more

USD bid during uneventful morning session

USD bid during uneventful morning session

Monday has proven to be a reasonably uneventful open to the week after the tumult of the past three weeks. The dollar is trading modestly higher against the G10 currencies today, although there is little sign of the intense investor panic and risk aversion that drove the dollar to highs earlier in the month. read more

South Africa lost Moody’s Investment-Grade Credit Rating

South Africa lost Moody’s Investment-Grade Credit Rating

March has not bought an easy end to the quarter for the South African economy, as the nation has been dealing with a mix of structural domestic concerns over the economy and international fears over the spread of coronavirus. Even before the virus spread globally, the country was struggled with various macro issues - since the end of 2019, unemployment has hit an 11-year high, manufacturing and production numbers have slumped to a 5-year low, and Eskom has experienced its worst ever generation crisis, leaving the entire economy without power for hours at a time. Long-standing structural labour market rigidities and persistent weak business and investor confidence finally made South Africa enter its second recession in two years. On Friday night last week, Moody's Investment Services announced that South Africa had lost its investment-grade credit rating after more than 25 years, meaning the country now has a junk rating from all three major international rating agencies. The announcement was made after the nation went on a three-week lockdown, on the same day as the number of infections passed 1,100 and the first victim died. Moodys' statement describes the key driver behind the rating downgrade from Ba1 to Baa3 as "the continuing deterioration in fiscal strength and structurally very weak growth", and does not expect current policy settings to address the concerns effectively. The rating agency has downgraded SA's long-term foreign-currency and local-currency issuer ratings and senior unsecured debt ratings, as well as the foreign-currency senior unsecured MTN and senior unsecured Shelf ratings to (P)Ba1 from (P)Baa3, as well as its foreign-currency other short-term rating to (P)NP from (P)P-3. Due to the downgrade, South African government bonds will be excluded from the FTSE World Government Bond Indexes, which are tracked by $3 trn of funds. The index will be reweighted in April, with South Africa's 0.45% weighting deducted from the index. The announcement was not entirely unexpected. Moody's downgraded their outlook on South African debt to negative in November, warning of SA's growing debt-to-GDP ratio, but the icing on the cake was when the country had no choice than to impose containment measures to curb the further spread of the coronavirus. South Africa's National Treasury sees the downgrade of the country's debt to junk by Moody's investors Service as an opportunity to fix the economy and stated that they "take this downgrade as an opportunity to do the right thing", and acknowledges that instead of putting more money into the economy, the nation should shift to structural reforms. South Africa's rand weakened to a record low this morning and breached 18 rand per dollar for the first time in history. An index of SA bank stocks slumped 6.1% on top of Friday's 12% drop. Acknowledging the still early stage of the spread and the economic damage that it has already done, this may signal that SA's economy may get impacted more severely as the virus hits its peak. While further short term downward risks certainly play a role for the rand given the economic outlook and downgraded rating, this does not directly have to translate into an even weaker rand in the long term. The shape that the structural reforms will take will be key in determining a longer term economic outlook. Finance Minister Tito Mboweni stated that the nation will approach the IMF and World Bank for assistance in mitigating the economic turmoil caused by the coronavirus.   The South African rand weakening past 18/$ for the first time ever recorded   USDZAR - 1 month window   MSCI Index    Eskom 2028 bond yield curve - now vs 1 month ago Author: Ima Sammani, Junior FX Market Analyst.   DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.   read more

GBPUSD remains vulnerable to further sentiment shocks despite historic easing measures

GBPUSD remains vulnerable to further sentiment shocks despite historic easing measures

From Monday’s lows to Friday’s high sterling rallied more than 9% against the US dollar last week, completing its best weekly performance since at least 2009. read more

Dollar holds steady, EU squabble and BoC surprise

Dollar holds steady, EU squabble and BoC surprise

The greenback fell by over a percentage point against all G10 currencies yesterday as liquidity conditions improved in markets and the dollar's synthetically produced strength due to credit and liquidity issues unwound. read more

Markets breathe a tentative sigh of relief

Markets breathe a tentative sigh of relief

Price action across FX, equities, and fixed income are suggesting a mood of relief today, with the US dollar lower across the board and equities higher after the US Senate passed a $2 trillion fiscal stimulus bill. read more

USD may find support as Central Banks up liquidity

USD may find support as Central Banks up liquidity

The US dollar continues to trade on the back foot in today’s session following its fall from grace yesterday. The DXY index, which tracks the dollar's performance against most major trading partners, continued its fall this week from a 4-year high. read more

Latest Fed measures seem to be working, for now.

Latest Fed measures seem to be working, for now.

After a worrying initial market reaction yesterday, the Fed's aggressive monetary and credit easing measures appear to be working. The US dollar is generally weaker across the board, US equity futures are pointing up, and there are reasons to believe the pressure on financial conditions may be easing. read more

Norwegian krone sees record volatility

Norwegian krone sees record volatility

As the most volatile currency in the expanded major currency space over the past week, the Norwegian krone has been swept away in the worsening virus-driven economic knockout and was hit by the double whammy of a strengthening dollar and a collapse in oil markets. read more

USDMXN trades beyond dollar liquidity constraints

USDMXN trades beyond dollar liquidity constraints

The Mexican peso is sitting at a new record low against the US dollar on the back of an increasing risk-off mood. Risk sentiment has caused extreme demand for dollar liquidity and hasn't been soothed by Banxico's latest measures, which may be regarded as underwhelming.  However large both the Fed liquidity provision measures and Banxico stimulus might be, we see the bottom for USDMXN nowhere in sight provided the substantial global and domestic recession risks. The increased provision of USD liquidity to domestic Mexican markets funded by the swap line with the Fed may help ease the speed and size of the fall, but the peso faces notably downside risks in front of several policy choices. Last Friday, Banxico moved forward its monetary policy decision scheduled for March 26th, implementing an emergency interest rate cut of 50 basis points. At 6.5% now, the policy interest rate is still deemed to be restrictive relative to the estimated neutral interest level, which is estimated at around 5%. This restrains the ability of the Mexican economy to navigate through the inevitable recession, especially in a context of constrained fiscal space. One of the committee members even leaned towards a shorter 25bp reduction, suggesting the board is not fully on board with the idea of substantial easing. There are two reasons for Banxico to stay fairly conservative on its policy stance despite threatening growth prospects: The Mexican capital account is largely reliant on its premium payments given the increasing risks of credit downgrade by foreign rating agencies and The potentially large pass-through effects on inflation from the policy-induced currency depreciation. Banxico assessed that upside inflation risks from a weaker currency are broadly balanced with the negative impact of soft demand and lower energy prices under the current policy stance. However, the central bank stated that the uncertainty to the inflation outlook has increased, adding to the prospects of cautious forward guidance. We now expect Banxico to engage in further easing by at least 150bp of additional cuts over the next two quarters, in line with repriced market expectations of monetary easing after the last Banxico move. While this size of accommodation could prove insufficient to prevent Mexico from a large recession this year, further moves might be counterproductive for the domestic inflation outlook. Regardless, either policy choice in the cards of Banxico –a sharp or mild monetary easing- poses significantly negative risks for the peso. On one hand, lower interest relative yields on Mexican increasingly riskier assets will force a major sell-off of in the peso. On the other, sticking to a rather conservative stance and refraining from cutting rates aggressively could send the economy into an even larger recession, curtailing demand for MXN too. The remaining silver lining in the peso's outlook comes in the form of Banxico directly intervening in the FX market. Last week, the Fed engaged in a swap line arrangement with Banxico for provision of $60 billion of USD liquidity, which Banxico is now injecting in local markets via repo operations. However, in both of the offerings conducted so far of $2 billion each, the market intake of USD has fallen short of the amount offered, about 23% and 76% respectively. This surprising mismatch indicates that the MXN price action might not be driven by USD fund squeezing in full, but rather by a fundamental sell-off of MXN, which may have slightly eased just for now.   Markets are pricing in a more proactive policy stance after Banxico unexpectedly cut rates in an emergency meeting on March 20th.   MXN sell-off has probably surpassed USD fund squeezing limits and is fundamentally trading on risk-off mood.   Author: Olivia Alvarez Mendez, FX Market Analyst     DISCLAIMER: This information has been prepared by Monex Canada Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Flash PMI Data: UK & Eurozone

Flash PMI Data: UK & Eurozone

Flash Purchasing Managers Indices for the UK and leading Eurozone economies will be released on Tuesday morning, giving markets a first look at the impact of the coronavirus outbreak on business confidence. read more

BoE Primer

BoE Primer

The combined fiscal and monetary response from the UK is both cutting edge and timely and is likely to be studied in textbooks for decades to come. As far as mitigating the economic impact of the coronavirus, it is likely to be a “best in class” solution in terms of scope and timeliness. read more

Fed switches to “Whatever it takes” in bid to beat yield curve and financial conditions into submission

Fed switches to “Whatever it takes” in bid to beat yield curve and financial conditions into submission

Jerome Powell and the FOMC have finally had their “whatever it takes moment” and promised open ended asset purchases aimed at beating the US yield curve and financial conditions into submission. read more

Markets breathe a sigh of relief, but is it short lived?

Markets breathe a sigh of relief, but is it short lived?

All major currencies are in the green against the US dollar overnight, after the wave of risk aversion and dollar liquidity stress that drove the greenback higher has abated slightly. read more

Norges Bank surprises with another rate cut

Norges Bank surprises with another rate cut

Norges Bank unanimously decided to cut its benchmark policy rate by 75 bps to 0.25% this morning - a record low for Norway's economy. The previous cut was announced just a week ago when the central bank reduced its policy rate from 1.5% to 1%. read more

Currencies rally vs US dollar amid reprieve in global risk-aversion

Currencies rally vs US dollar amid reprieve in global risk-aversion

Global currencies began to rally overnight as risk appetite improved and bond yields fell in the developed world, although some major currencies have yet to recoup their losses from yesterday. read more

USD note

USD note

The dollar’s rampage continues into another session today in FX markets, focusing on the G10 currencies that previously performed well amidst the market turmoil; EUR, JPY and CHF. read more

BoE joins wave of desperate central bank action aimed at stabilising sovereign bond markets

BoE joins wave of desperate central bank action aimed at stabilising sovereign bond markets

The Bank of England has decided to cut interest rates by 15 basis points to 0.1%, and will increase asset holdings by £200 billion following an extraordinary meeting. read more

USDNOK reaches levels never seen before

USDNOK reaches levels never seen before

Worsening concerns about the global impact of Coronavirus and plunging crude oil prices have created a perfect storm for commodity currencies, especially NOK. read more

What to expect from SNB tomorrow

What to expect from SNB tomorrow

The Swiss franc currently sits at a 5-year high against the euro on the back of increased global demand for heaven assets triggered by fears of recessions occurring globally. read more

Canada unveils $82bn fiscal package

Canada unveils $82bn fiscal package

Worryingly for spectators, PM Trudeau sidestepped questions about whether the Canadian economy is set for a recession, which it undoubtedly is in the current climate. USDCAD continues to climb higher towards levels not seen since 2016, with the high of 1.4690 now in scope.  read more

Sterling falls to unstoppable US dollar as markets stare down the barrel of crisis…

Sterling falls to unstoppable US dollar as markets stare down the barrel of crisis…

Sterling has fallen to the lowest level against the US dollar since 1985 amid a global dollar liquidity shortage that has seen the greenback run rampant against all major currencies. read more

The Fed dusts off another 2008 liquidity tool

The Fed dusts off another 2008 liquidity tool

The Federal Reserve today said it has established a new Commercial Paper Funding Facility, similar to that used during the 2008 financial crisis, to try and appease further dollar funding stresses – this time in non-financial corporate debt markets. read more

MXN faces further downward risks under current market uncertainty

MXN faces further downward risks under current market uncertainty

The peso has led losses driven by the coronavirus within the EM space, and its dominant trading volume in Latam has made it particularly sensitive to recent market turmoil in the area. read more

Riksbank blow dust off of QE machine to avoid shame of negative rates

Riksbank blow dust off of QE machine to avoid shame of negative rates

Late on in yesterday's session, the Riksbank came out and signalled to markets that it was willing to spend as much as Kr300bn ($30bn), or almost 6% of GDP, from March to December this year on government bonds, municipal bonds and covered bonds. The bank also flagged that it may decide to expand into corporate bonds should it deem necessary. This marks the second batch of stimulus released by the Swedish central bank after Governor Ingves announced $50bn in bank loans back on the 13th March.  By restarting QE, the Riksbank has pledged to almost double its balance sheet. With the number of assets owned by the central bank increasing at a rapid rate, they had to get creative and include new securities in their purchasing programme, hence the inclusion of covered bonds and municipal bonds in their new QE programme. The measures taken didn't just stop there, however. The bank will also offer out Kr500bn to companies via banks to ensure that a credit shortage will not exacerbate the economic impacts of the virus any further. The Riksbank will offer up to Kr500bn against collateral for onward lending at a 0% rate (variable and fixed to the repo rate which is also predicted to stay at 0% for the foreseeable future) for up to 2-years. Further measures announced: Reduce the lending rate on overnight loans to banks from 0.75 to 0.2 percentage points above the repo rate. The repo rate remains at zero. Offer banks to borrow an unlimited amount of money on a weekly basis against collateral at three months' maturity at an interest rate of 0.2 percentage points above the repo rate. Increase flexibility with regard to the collateral banks can use when they borrow from the Riksbank, which will, among other things, give banks more scope to use mortgage bonds as collateral. The countercyclical buffer rate, the amount of capital to be held on the balance sheet of banks, is to drop from 2.5% to 0% in order to pre-emptively avoid a credit crunch. The Riksbank has also announced that they are prepared to take further measures and supply liquidity even between scheduled meetings, while purchases of bonds by non-financial institutions may also be considered.  Given the size and the scope of these measures, it is unlikely the Swedish central bank will dive back into negative rates after they fought long and hard to return the repo rate to 0%. The impact will be supportive of the economy, especially the retail sector given the loan support, and reiterates the global narrative that central banks will continue to deploy all tools at the zero lower bound to provide ample liquidity to support the economy. However, once the dust settles and conditions return to normal, the measures put in place by the Riksbank are likely to keep the currency pinned at weaker levels as the central banks purchasing crowds out potential foreign investment. The krona has sold off over 1.5% against a surging US dollar today, while it is, in fact, flat against the euro on the day. EURSEK chart   USDSEK   Author: Simon Harvey, Market Analyst at Monex Europe.   DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Fed goes nuclear to suppress dollar demand and mitigate economic impact from virus

Fed goes nuclear to suppress dollar demand and mitigate economic impact from virus

The Federal Reserve has taken the extraordinary step of slashing interest rates a full percentage point, restarting quantitative easing, and announcing a host of additional liquidity and credit easing measures. read more

ECB opts for scalpel instead of bazooka as Lagarde delivers train wreck press conference

ECB opts for scalpel instead of bazooka as Lagarde delivers train wreck press conference

Christine Lagarde has opted for a scalpel instead of a bazooka. Although there is merit to the ECB’s targeted lending approach, today is likely to go down in history for Lagarde’s fateful and possibly catastrophic remarks about sovereign spreads. read more

The Bazooka Budget

The Bazooka Budget

Today’s measures show not just synchronisation between the Treasury and Bank of England, but massive coordinated fiscal and monetary stimulus. Sunak was keen to emphasise this coordination early in his speech; instead of merely taking policy action at the same time, the BoE and treasury have clearly built their response to be synergistic, particularly in targeting support to businesses. read more

BoE sends message of policy synchronization with Treasury, setting stage for historic budget

BoE sends message of policy synchronization with Treasury, setting stage for historic budget

The Bank of England has cut its policy rate by 50 basis points this morning, slightly surprising markets but failing to move the needle much for sterling. read more

JPY has woken up

JPY has woken up

As economic and financial risks to the economy intensify, markets are looking to Japanese fiscal and monetary policy for an aggressive response. read more

UK budget set to blow the doors off

UK budget set to blow the doors off

Receptive market conditions, changing political ideologies, and the coronavirus shock all mean that this week’s UK budget is likely to see Rishi Sunak open the fiscal taps and allow the UK deficit to increase.  read more

ECB must ease – but has limited options

ECB must ease – but has limited options

G7 finance ministers and central bank heads may not have officially agreed to a synchronised monetary response at last week’s conference call, but the US Federal Reserve’s 50 basis point inter-meeting cut has made the issue of coordination moot. read more

Coronavirus fears forces a race to the bottom

Coronavirus fears forces a race to the bottom

Monetary policy has been the global economy’s front-line of defence against the spread of COVID-19, with fiscal support only now beginning to trickle through outside of Asia. read more

A concerned SNB will prevent further CHF overvaluation despite US Treasury vigilance

A concerned SNB will prevent further CHF overvaluation despite US Treasury vigilance

With CHF trading close to three-year highs against the euro and upside pressure building on the currency from global risk-off moves, SNB intervention remains likely despite surveillance by the US Treasury, limiting the extent to which we believe the franc can rally in the coming periods. read more

US yields tumble as stocks remain under pressure

US yields tumble as stocks remain under pressure

The dollar continues to trade on the back foot today with February’s Nonfarm Payroll release in scope. Treasury yields continued to fall in Asian trading today. read more

Tentative signs of USD softening against safe carry trade targets

Tentative signs of USD softening against safe carry trade targets

The dollar has traded on the back foot this morning, with modest losses coming against GBP and NZD in the G10 space and KRW, MYR, and TYD elsewhere. This pattern is consistent with a modest improvement in risk appetite relating to open, developed economies. read more

USDCAD and Bank of Canada

USDCAD and Bank of Canada

Yesterday's Bank of Canada meeting poses the greatest short-term risk to our outlook. Governor Stephen Poloz is currently in a precarious position; cut by 50 basis points and risk inflating house prices further or cut by 25 basis points and run the risk of currency appreciation unwinding the stimulus. read more

Jay Powell takes out the big guns with intra-meeting cut not seen since 2008

Jay Powell takes out the big guns with intra-meeting cut not seen since 2008

The Fed’s surprise rate cut was the first outside of a regular monetary policy meeting since 2008, and was accompanied by a press conference where Fed chair Jerome Powell said the US economy remained strong, but that the early indicators of the virus’s impact had worsened the outlook and prompted a rate cut. read more

FOMC cuts rates outside of a meeting for the first time since 2008

FOMC cuts rates outside of a meeting for the first time since 2008

Jay Powell and the Fed have taken the warning financial markets have given about coronavirus over the past weeks to heart and brought out the big guns with a 50bp intra-meeting rate cut. read more

Murmurings of fiscal action in Germany

Murmurings of fiscal action in Germany

With the euro attempting a nascent recovery last week in the face of a worsening virus shock, and the ECB seemingly resistant to short term policy easing, hopes of a fiscal response from the eurozone’s largest economy came in to focus last week. read more

The Reserve Bank of Australia must weigh coronavirus shock against tailwind from rising house prices

The Reserve Bank of Australia must weigh coronavirus shock against tailwind from rising house prices

With AUDUSD reaching fresh decade lows last week and house prices rising, the RBA has considerable tail winds to weigh against the incoming coronavirus shock at Tuesday’s meeting. read more

Bank of Canada preview – wiggle room may dissipate by April’s meeting

Bank of Canada preview – wiggle room may dissipate by April’s meeting

Next week’s Bank of Canada meeting is arguably too soon to see a rate cut from Governor Poloz, but swap markets have aggressively priced in a greater than 50% probability on Friday afternoon alone. read more

Cracks finally show in US dollar as markets expect FOMC cuts driven by virus shock

Cracks finally show in US dollar as markets expect FOMC cuts driven by virus shock

As the virus outbreak spread to new countries and hopes of containment faded last week, the US dollar finally began to weaken against certain currencies, including low yielding G10 partners like EUR, CHF and JPY. Last week’s price action in global macro markets was consistent with intensifying risk aversion, coupled with increasing expectations of rate cuts from the FOMC. The strong performance of the euro in particular may have been also driven by the unwinding of carry trades funded in the single currency. To illustrate the importance of market expectations of Fed easing as a trigger for last week’s limited USD sell-off against EUR and JPY, we point to forward pricing of overnight index swaps dated for the second future Federal Reserve meeting. The current contract indicates the effective forward rate available after the April FOMC meeting – an effective guide to market expectations of Fed policy. For most of February, the dollar continued to appreciate, particularly against EUR and JPY. Over this time period, no rate cuts were priced from the Fed as US data remained firm despite the worsening global shock. The 21st of February offered the first signs of the global shock affecting US producers, with the US Markit Composite PMI contracting for the first time since October 2013. Pricing of the April FOMC meeting began to show some hints changing expectations shortly after the PMI release. The following Monday the 24th, US equity markets began to sell off rapidly, and the US yield curve became significantly more inverted over the 3 month 10 year horizon. Over the course of the following week, market expectations for a rate cut from the FOMC began to build rapidly and are now pricing in more than a full rate cut as early as March.   Dollar Strength Eases as Markets Price FOMC cuts February 21st – the date of the Markit Flash PMI release – marked by vertical orange line When viewed in the context of a growing and worsening global virus outbreak, we believe the inversion of the US yield curve points towards a rate cut from the FOMC either at the March or April meetings. With markets fully pricing a rate cut as early as March, failing to deliver would represent a marginal tightening in financial conditions. This is something the FOMC will likely shy away from given the worsening global macro risks of coronavirus and the sudden cooling in US data. The prospect rate cuts has not yet showed up in Fed speak, although last week’s comments from Fed Governor Lael Brainard in support of flexible inflation targeting added to the dovish atmosphere.   US Yield Curve inverts over 3m-10y horizon   This week’s US data offers further information on the extent to which virus fears are affecting US confidence and may potentially add to further volatility in markets given heightened sensitivity to data showing the effects of the coronavirus of late. Final Markit PMIs on Monday 14:45 will offer a revision to the disappointing flash figures released on the 21st. ISM PMIs will also be released the following day. The US labour market has been robust to multiple confidence shocks over the past decade, and so it’s unlikely Friday’s non-farm payrolls report will offer much for USD bears, although as always the release is a red-letter event for the dollar.   Author: Ranko Berich, Head of Market Analysis at Monex Europe.     DISCLAIMER:This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

China PMIs: Time to address the elephant in the room

China PMIs: Time to address the elephant in the room

While a slowing global economy due to the impacts of the coronavirus and its containment is a well known narrative, markets have still grappled with how to price it. read more

NZ economy enjoys tail winds, but NZD rally contingent on coronavirus shock easing

NZ economy enjoys tail winds, but NZD rally contingent on coronavirus shock easing

New Zealand’s economic outlook stabilised in Q4 2019 after a plunge in business confidence earlier in the year due to US-China trade tensions. Combined with a moderately optimistic tone from the RBNZ and our base case for modest weakness in the US dollar, this led us to take a bullish view on the Kiwi dollar in 2020 in our last global outlook. read more

NOK faces coronavirus fears but should outperform in H2 on domestic data

NOK faces coronavirus fears but should outperform in H2 on domestic data

The Norwegian krone has sold off over 6% against the US dollar since the start of the year predominantly due to a deterioration in the external climate. The downturn in global growth prospects due to the coronavirus outbreak has not only fueled further dollar strength but also resulted in a softer euro. read more

Fundamentals remain good for AUD, provided coronavirus shock dissipates

Fundamentals remain good for AUD, provided coronavirus shock dissipates

Australia’s economic outlook began to improve in Q4 2019 - a change the Reserve Bank of Australia described as a “gentle turning point” after a significant slowdown over the course of the year. read more

Yen should strengthen modestly on the back of fiscal support

Yen should strengthen modestly on the back of fiscal support

A positive rebound in the global backdrop for the second half of the year, along with an expected domestic growth pick-up, should underpin the currency rally, while the USD strength gradually fades. read more

US economy remains robust, but the FOMC determinedly remains on the defensive

US economy remains robust, but the FOMC determinedly remains on the defensive

The US economy remains robust by most measures, having weathered last year’s trade war shocks to register 2.1% annualised growth across both Q3 and Q4 2019. read more

Loonie and BoC face fresh external growth concerns

Loonie and BoC face fresh external growth concerns

Market events since the publication of our 2020 outlook have forced us to revise our short-term USDCAD forecast upwards. Our 2020 outlook, written back in December, discussed how USDCAD would break the $1.30 barrier in the second half of 2020 should the US and China sign a phase-one trade deal. While the narrow trade deal was signed and the loonie broke the $1.30 barrier in the early part of January 2020, in part due to rising tensions in the Middle East spurring oil prices higher, the rally didn’t prove sustainable. A double whammy of a dovish Bank of Canada meeting on January 22nd and news of the coronavirus outbreak in China reversed sentiment in the Canadian dollar. USDCAD soon found itself trading in the $1.32 range, with the $1.33 barrier falling shortly after. A further deterioration in risk appetite now sees USDCAD trading up near $1.35. Given the fact that recent FX pricing has been driven by exogenous and unpredictable shocks, we maintain our view of a stronger Canadian dollar in the longer-run due to the structural outperformance of the Canadian economy relative to other developed markets. However, the ensuing impacts of the coronavirus on the global economy have forced us to trim our bullish CAD expectations in the short-run, with risks skewed towards a further weakening of the Canadian dollar. CAD Forecasts   External headwinds have re-emerged in the shape of the coronavirus In December’s meeting, with a narrow trade deal seemingly on the table, the Bank of Canada struck an optimistic tone that led to markets trimming the prospect of an insurance rate cut in the near future. However, the optimism wasn’t shared by the Governing Council in January’s meeting due to slowing economic activity in Q4 threatening the bank’s outlook coming into the new year. The dovish tone struck by Governor Poloz the second time around led to the largest daily USDCAD move year-to-date, with the currency pair jumping half a percentage point open-to-close. With domestic macroeconomic conditions already a concern, external headwinds to the economy, which previously took the form of US-China trade tensions, re-emerged in the repackaged form of the coronavirus. Initially, the Canadian dollar weathered the storm that faced many open economies linked to commodity markets as investors flocked to safer assets. The higher yield on Canadian government debt propped up the loonie, but this support was short-lived. The impact of the virus on tourism expenditure and oil prices pushed USDCAD above the $1.33 barrier, which it previously failed to break before oil prices dipped below $50.   Chart: US-CA 2-year yield spread points to a loonie rally should the BoC remain on hold and risk appetite improve   FX markets have priced the growth shock more aggressively than fixed income markets, which view March’s meeting as too premature to expect a rate cut. The probability of a rate cut implied by Overnight Index Swaps has barely moved since the last Bank of Canada meeting, with swap markets still pricing a roughly 50% chance of a 25 basis point rate cut in April’s meeting. We maintain that despite a slowdown in growth in Q4, the Canadian economy continues to grow at a resilient but low level, supported by a tight labour market. Preliminary activity data for Q1 suggests that concerns of lower domestic activity look stretched. However, this view is subject to change should official data from China highlight a more substantial slowdown in global growth which will likely drag on economic activity domestically. With Canada’s economy exposed to external growth conditions, data for February will prove key in assessing the impact the coronavirus had on domestic activity, and therefore predicting the next steps taken by the BoC. That being said, we believe the bar to further monetary easing is high, a view fixed income markets are similarly sharing, due to fears of spurring a housing bubble. We expect BoC policy to follow a similar pattern to that of 2019 – dovish tones without a material adjustment.   Chart: OIS pricing of rate cuts in the next two BoC meetings have barely changed since the January 22nd meeting despite the increasing risk of a coronavirus induced slowdown   Without another substantial demand-side shock we believe WTI will remain supported around the $50 level, conditional on further cuts by OPEC in March. Crude markets have arguably priced in the ensuing fall in demand from the coronavirus outbreak, with the epidemic shaving nearly $10 off the price of a barrel of WTI. With OPEC+ weighing up further production cuts conditional on Russia’s agreement, we believe oil prices have likely bottomed out for the time being. Oil prices are a major risk to the loonie outlook. However, the length of the containment programme in China is key for assessing how entrenched the demand shock truly is. Additional risks come in the form of production cuts, which are not a foregone conclusion. Neither additional cuts, nor the extension of the current policy have been confirmed by officials. Market participants are now looking to the March OPEC meeting to provide more clarity on the issue. A lower oil price not only hinders Canada’s current account, but also investment in the industry. This was the theme for much of 2019 and could further drag on economic activity if sustained.   Author: Simon Harvey, FX Market Analyst at Monex Europe.      DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Domestic data should underpin SEK but short-term risks prevail for the krona

Domestic data should underpin SEK but short-term risks prevail for the krona

Our SEK calls remain mostly intact from our 2020 outlook, with just a minor upwards revision to USDSEK to account for the deteriorating global growth outlook. However, our adjustment for a weaker krona is lower than our euro adjustment, ultimately leading to a downwards revision in EURSEK. read more

Macro data, coronavirus, and EU-China trade will be the key themes for Q1

Macro data, coronavirus, and EU-China trade will be the key themes for Q1

Recent eurozone data flow has been poor, and the coronavirus outbreak presents an additional downside risk to the eurozone. read more

UK Economy in good place for whatever comes in Q1

UK Economy in good place for whatever comes in Q1

The recent fall in GBPUSD may look like more Brexit-related losses for the pound, but in reality the decline from around 1.32 at the beginning of February to 1.2900 this week has been mostly driven by the US dollar. read more

Sterling sells off on latest brinkmanship from Boris

Sterling sells off on latest brinkmanship from Boris

As outlined in earlier speeches, the mandate is a bid for absolute control over UK standards for competition, environmental standards, labour rights, and the other areas that the EU has insisted must be subject to “level playing field” provisions. read more

Rand rallies despite upwards revisions to debt trajectory

Rand rallies despite upwards revisions to debt trajectory

Following the release of February’s medium-term budget statement, the South African rand reversed its losses early in today’s session to sit half a percentage point higher on a day where markets battle a heightened risk environment and the dollar continued to firm across the board. read more

Mboweni’s medium-term budget in scope for South African investors

Mboweni’s medium-term budget in scope for South African investors

Following an underwhelming State of the Nation Address by South African President Cyril Ramaphosa two weeks ago, market participants turn their eye to Finance Minister Tito Mboweni’s medium-term budget announcement on Wednesday 26th. read more

Euro weighed down by economic sentiment and a strong US dollar

Euro weighed down by economic sentiment and a strong US dollar

Last week, the currency fell through a 34-month support level against the dollar, after plummeting nearly 3% since the beginning of February and recording fresh lows for 13 consecutive sessions. read more

IFO Data Release Exceeds Expectations

IFO Data Release Exceeds Expectations

This morning’s IFO data release saw upside surprises in all three readings. Being based on ~9000 survey responses from German firms in different sectors, the IFO reading is a leading indicator of any turning points in the German economy. read more

USD dominant as markets focus on worsening regional macro risk

USD dominant as markets focus on worsening regional macro risk

The dollar’s bull run accelerated last week, as official data indicated the coronavirus outbreak in China was beginning to slow, but regional outbreaks in South Korea and Japan worsened, and investor risk appetite once again deteriorated. read more

UK consumer spending uptick comes after noisy adjustments

UK consumer spending uptick comes after noisy adjustments

January’s retail sales report suggests that UK consumers are joining in the burst of optimism experienced by businesses in the new year. read more

Canada’s inflationary overshoot may not last

Canada’s inflationary overshoot may not last

Today’s CPI release saw headline inflation overshoot expectations by 0.1 percentage points to post a print of 2.4% in January – the highest reading in 15 months. However, the loonie’s reaction was relatively muted. read more

Markets vs. the Fed: An ongoing debate

Markets vs. the Fed: An ongoing debate

The Federal Reserve fund futures prices show that markets are expecting more easing from the Fed this year, probably as a result of the macroeconomic impact of the coronavirus outbreak. read more

UK PMIs follow Javid resignation

UK PMIs follow Javid resignation

Sajid Javid’s resignation as Chancellor of the Exchequer last week triggered a rally in sterling, as markets began to speculate that his departure suggested an increased likelihood of fiscal stimulus from Boris Johnson’s government. read more

Coronavirus risk and souring data weigh on the euro

Coronavirus risk and souring data weigh on the euro

Last week, the single currency breached its 33-month low against the US dollar due to weak economic data and coronavirus fears. In the data, industrial production figures for December were especially disappointing. They came after January’s PMI surveys had suggested the slowdown in production had bottomed out. Eurozone industrial production plummeted for the 14th month in a row in December, with the 4.1% YoY contraction marking the sharpest downturn in the sector since the financial crisis. The euro proved highly sensitive to these releases, which is understandable considering the poor performance of the manufacturing sector in 2019 prompted fears of a recession. Output in the manufacturing sectors remains the weak point in the eurozone’s growth outlook. Fears about the coronavirus outbreak’s economic impact added to the downside risks facing the domestic economy, fueling arguments for looser policy from the ECB. Dovish expectations have arisen yet again despite ECB President Lagarde recently re-voicing her concerns about the negative side effects of prolonged monetary stimulus. Lagarde’s comments would normally have suggested that the central bank is searching for a path to normalization. Investors have begun to mull the idea of further stimulus as per the worsening economic outlook and EU states resistance to increase fiscal support. Although we believe the ECB is not yet on track for another policy move after the September stimulus package, hard macroeconomic data and forward-looking indicators that are released this week could prove pivotal in determining the ECB’s next move.   The Eurozone macroeconomic picture looks grim Euro area GDP grew by 0.1% QoQ in Q4 2019, marking its slowest quarter for growth since 2013. The drag was mainly driven by contractions in the French and Italian economies along with economic stagnation in Germany. Spain, on the other hand, was the lone economic outperformer among the four largest eurozone economies. Overall, the latest GDP print implies annual growth of 1.2% in 2019, notably lower than the 1.9% in 2018 and below the average rate of growth over the last decade. While the euro area economy remains underpinned by resilient domestic demand from the strongest labor market since the financial crisis, deteriorating external demand continues to drag on growth. The global industrial slump on the back of heightened US-China trade tensions has only amplified the weaknesses in the eurozone economy due to its large exposure to global demand conditions. While a similar divergence between services and manufacturing output in 2019 didn’t topple the eurozone economy, the widening spread between the two sectors suggests the bloc may enter negative growth in Q1 without a material improvement in manufacturing activity. Coronavirus fears have largely erased any positive sentiment stemming from the January PMIs and the US-China trade deal. Even though the eurozone has limited exposure to Chinese supply chains when compared to other countries, the potential damage of the outbreak on the eurozone economy is threefold. First, the contraction in Chinese demand on the back of a slowing economy could trim eurozone exports in Q1 – China is the bloc’s third largest trading partner after the US and UK. Second, among all European sectors, the automobile industry is one of the most exposed to Chinese inputs. The automobile sector is also highly sensitive to global demand conditions, with weaknesses in that industry spilling over in the bloc’s growth as a whole in 2019. Finally, the impact on market sentiment on the already weak euro area economy could have ample consequences in investment, even if the shocks from China on demand and supply were to revert in the short-run. This is likely to concern the ECB who are already battling record low inflation expectations. Chart: Falling German bond yields, a poor macro backdrop and political risks are dragging EURUSD down   Rumblings of Merkeldämmerung offer more uncertainty for Germany Even under normal circumstances, the sudden resignation of a Christian Democratic Union party leader and presumptive heir to Angela Merkel would have caused a storm in German politics. In light of the current malaise in the German economy, last week’s resignation by Annegret Kramp-Karrenbauer and the race to replace her takes on even more significance, both for the German economy and the eurozone as a whole. AKK’s resignation was triggered by regional elections in the state of Thuringia, where the CDU voted with the far-right Alternative for Germany (AFD) party to install a state premier. The range of possible outcomes in German politics is now very broad and uncertain and includes the possibility of resignation by Angela Merkel. This could lead to a collapse in the ruling coalition and a general election. In the immediate future, the CDU must choose a party leader and a candidate for the Chancellorship. Options range from continuity candidates such as Armin Laschet, to potentially more conservative politicians such as Friedrich Merz. The direction the CDU ultimately takes on issues such as European integration, the ECB, and fiscal policy could have a profound impact on the German economy.   Chart: Markets are beginning to expect policy action from the ECB   Even though no policy changes are likely in the coming weeks, any further developments in German politics will have the potential to have wider impacts in European markets.   Author: Olivia Alvarez Mendez, FX Market Analyst at Monex Europe in Madrid.      DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

Sterling rallies on hopes that Sajid Javid’s resignation heralds a Trumpian spending spree

Sterling rallies on hopes that Sajid Javid’s resignation heralds a Trumpian spending spree

This morning’s cabinet shuffle turned out to be exiting after all, when Chancellor Sajid Javid resigned after reportedly being asked to replace his staff of advisors with choices picked by Number 10. read more

Sajid Javid sets out UK’s ambition for equivalence agreement with EU

Sajid Javid sets out UK’s ambition for equivalence agreement with EU

GBP saw a slight rally yesterday and overnight, amid a major leak of part of the UK’s negotiating position in trade talks with the EU, and ahead of today’s release of gross domestic product data. The “opening position” of the UK was snapped by a long-lens camera while an unreleased briefing paper was carried into downing street, and is being widely reported on in UK newspapers. read more

OPEC undecided heading into the weekend

OPEC undecided heading into the weekend

Last week’s emergency three-day OPEC meeting in Vienna in response to news that China’s oil demand has fallen by 20% due to the coronavirus lockdown has yet to bear fruit. read more

Risks to the downside as RNBZ must navigate China slowdown

Risks to the downside as RNBZ must navigate China slowdown

The RBNZ surprised both our expectations and the market by holding rates unchanged in November, but must now navigate the risks of coronavirus to New Zealand’s small open economy. read more

PBOC toolkit prevents panic

PBOC toolkit prevents panic

Chinese authorities rolled out a now-familiar crisis response strategy to prevent panic in financial markets last week. Repo rates were cut by 10 basis points on Monday, and a net 550 billion yuan was pumped into repo markets over the first two days of the week. CNY was allowed to depreciate above the 7.00 level, with the PBOC leaning against further depreciation. Officials hinted at further measures, such as changes to Required Reserve Ratios, further rate cuts, and fiscal easing. On the whole, the response was effective: equity markets stabilised after Monday, USDCNY rallied and CNY was no longer reliant on the PBOC using its daily fix for support by Friday. The risk rally was less impressive globally, with USD remaining well bid against most major currencies, but on the whole, it seems global markets judged the PBOC’s measures sufficient to prevent a wider sell-off of the sort seen in 2015 or 2019. With markets avoiding a wider panic for now, focus will likely turn to the likely slowdown in the Chinese economy, prospects for containment, and the global impact on other markets and central banks. Chart 1: USDCNY and GS estimate of countercyclical factor     A lower countercyclical factor suggests the PBOC is setting the daily fix higher than it otherwise would be, in order to support CNY. First estimates of the impact of Coronavirus on Chinese and global GDP were released last week by various forecasters. Global central banks such as the Reserve Bank of Australia and the Monetary Authority of Singapore also began to respond to the possible effects of the virus. Despite the wide and often heroic assumptions required to make these estimates, they are relevant for FX and global markets. While relevant, they should be taken with a pinch of salt due to the fact that the duration and extent of the outbreak remains unknown: Using the 2003 SARS outbreak as a baseline, Goldman Sachs economists estimate a reduction in Q1 GDP, scaling up the impact by 50% relative to the 2003 SARS outbreak, due to wider travel restrictions. They estimate Q1 GDP growth will decelerate to 4% year on year, down from a previous forecast of 5.6%. This is equivalent to a 0.5% contraction in Q1 GDP. Growth is then expected to accelerate rapidly, reaching 6% y-o-y by the end of 2020. Pantheon Macroeconomics are expecting a more dramatic 1% quarter on quarter fall, followed by a strong pickup through to the end of the year. The Monetary Authority of Singapore loosened its monetary policy stance by allowing SGD to weaken, describing the change as being “in line with the weakening of economic conditions as a result of the outbreak of the 2019 novel coronavirus”. Reserve Bank of Australia Governor Philip Lowe warned that the impact of coronavirus would be worse than the 2003 SARS outbreak, while also reiterating the RBA’s relatively upbeat policy stance and explicitly saying that he considered the risks of further cuts to outweigh any benefits. Assuming that the effect of coronavirus is a sharp shock to Q1 growth in China, followed by a rapid recovery due to aggressive stimulus measures, there is a high potential for volatility in economic growth and financial markets globally. Central banks will make different policy responses based on domestic conditions, creating the potential for heightened FX volatility, particularly in countries with significant exposure to the Chinese economy. In addition to headline exports to China, economies reliant on particularly sensitive industries such as retail or tourism are likely to be more susceptible. Crude oil prices also have high potential for volatility, with OPEC’s supply response another key unknown variable at this point.   Chart 2: Exports to China as a Percentage of GDP, 2018   Author: Ranko Berich, Head of Market Analysis at Monex Europe.      Disclaimer: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.   read more

The Riksbank’s return to zero – was it wise?

The Riksbank’s return to zero – was it wise?

Next week marks the first Riksbank meeting since December’s decision to hike the repo rate by 25 basis points and return policy to 0%. While the central bank signalled heavily that the return to zero would occur in either of the December or February meetings, the decision to hike rates sooner rather than later wasn’t unanimous. read more

Greenback roars with NFP in scope

Greenback roars with NFP in scope

The weighted DXY index of USD vs major currencies is trading at a high for the year, and is on track to enjoy its biggest weekly gain since September. Today’s non-farm payrolls report, therefore, will be facing high expectations when it is released at 13:30 GMT. read more

Dollar takes no prisoners as risk climate continues to shift

Dollar takes no prisoners as risk climate continues to shift

The dollar broadly firmed for another trading day yesterday with the broad dollar DXY index reaching levels not seen since late November. The data likely helped the greenback as risk sentiment continues to chop and change in markets as survey-based measures of output and employment change showed the strong state of the US economy. read more

Markets lick wounds as PBOC measures deemed ample, for now

Markets lick wounds as PBOC measures deemed ample, for now

Sterling began yesterday with an extension of its sell-off from Monday, reaching fresh lows in the morning, but then stabilised and managed to end the day marginally higher against the dollar and euro. On the whole, the US dollar has been on the back foot against AUD, SEK and NOK since yesterday’s tentative risk rally began, but advancing against CHF and JPY. read more

PBOC shores up risk appetite

PBOC shores up risk appetite

The Chinese renminbi gained some strength overnight as Chinese stocks stabilized after the largest recorded market loss following the virus outbreak and boosted sentiment. read more

Banxico easing likely to continue

Banxico easing likely to continue

The Mexican peso outperformed in the first month of 2020, being one of the only four currencies in the EM space with positive spot returns against the dollar. read more

Sterling after Brexit

Sterling after Brexit

The pound continues to face two serious risks that are hampering a rally: ongoing political uncertainty, and murky growth prospects. read more

FX pricing of coronavirus has been limited but all may change

FX pricing of coronavirus has been limited but all may change

The coronavirus has rocked global financial markets this week although the effect has been limited in the G10 FX space compared to equity and commodity pricing. read more

CNY weakens but no signs of collapse

CNY weakens but no signs of collapse

The dollar is on firmer ground this morning after a partial sell-off at the end of the month on Friday. Data, politics, and geopolitics will create a rich mix of narratives this week for global markets, with the dollar caught up in the middle as usual. read more

Dollar strengthens with Trump acquittal and PCE in scope

Dollar strengthens with Trump acquittal and PCE in scope

The dollar had a mixed session yesterday, posting substantial losses against haven currencies and the pound while exacting a pound of flesh from commodity-linked G10 currencies. read more

Monetary Policy Committee majority not persuaded by “risk management considerations”

Monetary Policy Committee majority not persuaded by “risk management considerations”

The key factors driving the majority of the MPC voting to hold rates seems to have been the obvious ones: Brexit risk has fallen and the US and China have signed a trade truce. read more

Volatility returns to USDCAD

Volatility returns to USDCAD

The Canadian dollar was one of the more exciting G10 currencies against the dollar last week with only the Norwegian krone and British pound proving more volatile. read more

FOMC in focus: on hold until proven otherwise

FOMC in focus: on hold until proven otherwise

This week’s FOMC meeting not only marks the first of eight meetings in 2020 but also the first time Jerome Powell faces both media and markets since the phase one trade deal was signed. read more

Monetary Policy Committee likely to hold rates in knife-edge decision

Monetary Policy Committee likely to hold rates in knife-edge decision

Thursday’s MPC decision will be the least clear cut in years, with UK data uncertainty and global conditions providing compelling arguments for both an “insurance” rate cut and for no change. read more

UK businesses breathe a sigh of relief after election

UK businesses breathe a sigh of relief after election

The general election seems to have made a world of difference in UK business sentiment, which picked up sharply in January after what appears to have been a dismal fourth quarter. read more

Loonie lower post BoC but a rate cut isn’t a given

Loonie lower post BoC but a rate cut isn’t a given

The reaction in the loonie is just what the Bank of Canada needed with economic activity practically grinding to a halt in Q4. While transitory events are likely to taint the GDP figure at the back end of last year, suppressed economic activity along with rising public infrastructure spending suggests capacity constraints may begin to alleviate as the output gap widens. However, as per the winter Business Outlook Survey, the main concern for businesses increasing output is supply restraints in the labour market, which has remained tight by historical metrics for some time now. From an inflationary outlook though, looser capacity constraints outside of the labour market pose the most substantial deflationary risk to the bank’s current outlook, as highlighted in chart 2 below. The Monetary Policy Report highlights this shift in risk parameters for the BoC’s outlook from external headwinds to more domestic factors in 2020. Despite the financial market reaction, the projections don’t suggest a rate cut is a foregone conclusion before Poloz’s term ends. The main takeaway from Wednesday's Bank of Canada meeting is that the Governing Council may revert to verbal stimulus and therefore play a game of cat and mouse with financial markets while the data materialises as opposed to a more conservative insurance rate cut. For now, a weaker currency is definitely favourable, especially considering the drag export growth had in the fourth quarter and the drag heightened imports are expected to have on Q1 this year (chart 1). From an inflationary standpoint, measuring the development of the output gap and the reassessment of the neutral rate in April will be key for nailing in the next policy move as economic activity is closely monitored in the meantime. Until then, without a substantial downturn in the data for Q1, it is hard to envisage a cut in before April being the likeliest option, especially with Governor Poloz ruling out an insurance rate cut. If the loonie continues to trade at a weaker level and fiscal stimulus provides mild support for growth, the bank is likely to embark on a holding pattern until the data suggests otherwise. Governor Poloz showed that the central bank will return to sitting behind the curve and policy will be data dependent.   Chart 1: Both Governor Poloz and Deputy Wilkins stressed the importance of Chart 5 of the MPR when discussing the bank’s forecast for the growth rebound in Q1.   Chart 2: Deputy Wilkins stressed the impact that a widening output gap will have on inflation, adding extra emphasis towards the April projections   Chart 3: USDCAD hits a 2020 high as markets begin to price in the increased probability of a rate cut in March   In the coming months, metrics of economic activity, the development of house prices, the willingness of consumers to spend at the margin, and current account dynamics will be key for predicting the next policy move. The data calendar is likely to return as a source of volatility for USDCAD for this reason.     Author: Simon Harvey, FX Market Analyst at Monex Europe.      This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

EUR lower after Lagarde dodges big questions

EUR lower after Lagarde dodges big questions

The euro has reached fresh lows for the year after Christine Lagarde’s second press conference as ECB President. The ECB kept rates on hold, and formally announced the scope of its monetary policy strategy review. read more

Central banks take over market focus

Central banks take over market focus

The euro continued its two-way price moves yesterday and remained well within this week’s range, but saw a short drop after US President Donald Trump threatened to impose “very high” tariffs on car imports from the EU if the bloc does not agree to a trade deal. read more

Labour market data complicates UK macro picture even further

Labour market data complicates UK macro picture even further

The UK data picture is exceptionally murky currently, and today’s jobs figures only complicate things further. Last week saw expectations of rate cuts from the Bank of England soar after a weak GDP print, poor retail sales, and dovish comments from MPC members. read more

USDCAD outlook remains intact as trade deal remains on pause

USDCAD outlook remains intact as trade deal remains on pause

While the pair broke the psychological barrier in the early part of January due to rising geopolitical tensions in the Middle East and its ensuing impact on oil markets, USDCAD has since resumed trading above $1.30 leaving the base case intact. read more

A week of bad data and dovish MPC commentary builds expectations of rate cut

A week of bad data and dovish MPC commentary builds expectations of rate cut

Last week’s UK data and MPC commentary overwhelmingly pointed towards a rate cut from the Bank of England. read more

Euro looking steadier as ECB likely to strike upbeat message this week

Euro looking steadier as ECB likely to strike upbeat message this week

The roughly two cent EURUSD rally seen from late September’s lows may seem small in absolute historical terms, but is significant in the context of the current low volatility environment in G10 FX. A lot has changed since Q3 2020, and the small rally in the world’s most traded exchange rate from around 1.0940 in late September to around 1.1140 last week belies important macro developments. The US and China have backed away from a dangerous escalation of the trade war, and global growth expectations have improved accordingly. The Eurozone economy remains characterised by dismal conditions in the manufacturing sector and a more solid picture in services and consumer sentiment. In light of the improvement in US-China tensions, this dichotomy looks less concerning than it did when Mario Draghi attempted one last expansion of ECB monetary policy late last year. The ECB’s first meeting of 2020 will be different to those of 2019, and not just due to the prospect of Christine Lagarde’s scarves replacing Draghi’s ties at press conferences. Based on recent data, meeting minutes, and macro conditions, the Governing Council is likely to strike a more optimistic tone and focus on the upcoming policy review as opposed to further easing.  A few things to look out for at Thursday’s presser: Last week’s meeting minutes from December showed that the Governing Council was less concerned about the manufacturing slowdown in H2 2019 becoming a full blown recession across the Eurozone. The key quote was: “Overall, business surveys since mid-September suggested a stabilisation in output growth at moderate rates”. As a result the chances of dovish surprise, or even much discussion about the policy outlook, are low. The key thing to look out for will be details of the ECB’s upcoming strategy review, which is expected to begin this month. A range of possible changes to inflation targeting are possible. These include a symmetric target, which is fairly likely, or perhaps a target band. December’s minutes suggested the Governing Council was keen to avoid giving away too much detail about the review, but agreed some “broad guidance” was appropriate. A more significant strategy change would be to move towards average inflation targeting, where the ECB would, for example, consider past undershoots in inflation when judging how it should respond to a current overshoot. Even hints that the ECB will consider average inflation targeting would be dovish at the margin for the euro and fixed income, as it would imply far less sensitivity to temporary overshoots in inflation. Chart 1: Eurozone Long Term Yields (top panel) and EURUSD (bottom panel) Eurozone long term yields bottomed out in late Q3 last year, as the US and China stepped back from further trade war escalation. The following reduction in the chances of serious Eurozone recession has tampered expectations of further ECB easing, and allowed the euro to rally modestly.       This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication. read more

South African Reserve Bank unexpectedly cuts rates

South African Reserve Bank unexpectedly cuts rates

The South African Reserve Bank unexpectedly cut rates yesterday alongside downgrades to both their CPI and growth projections from November’s forecasts. The central bank’s quarterly projection model now forecasts the repo rate to close out there year at 6.1%, suggesting another 25 basis point cut is soon to come in Q4. read more

CBRT cut rates but at a slower pace than 2019

CBRT cut rates but at a slower pace than 2019

The Central Bank of the Republic of Turkey cut rates today by 75 basis points as the cutting cycle continues but at a dramatically slower pace than in 2019. Today’s decision marked the smallest cut in policy rates under Governor Uysal since he was appointed governor in July. read more

CPI undershoots emboldening dovish pricing

CPI undershoots emboldening dovish pricing

Sterling continues to trade on the back foot this morning as the growing flock of doves at the Bank of England gets their second piece of confirmatory data to suggest a rate cut at the end of the month may be a done deal. read more

US removes currency manipulator designation from China

US removes currency manipulator designation from China

The US dollar traded mixed overnight, with CNY the biggest gainer after signs of progress emerged from US-China trade talks. It really does seem like white smoke is rising from Washington as the US and China are closing a phase one trade deal. read more

Sterling trades heavy as GDP data confirms BoE concerns

Sterling trades heavy as GDP data confirms BoE concerns

Following comments from Bank of England policy setter Vlieghe over the weekend, markets are beginning to turn their attention back to the economic data in anticipating whether the central bank will embark on a 25 basis point cut on January 30th.  read more

Risk off move after US drone strike raises Middle East tensions

Risk off move after US drone strike raises Middle East tensions

Sterling price action has mostly been quiet so far this week, and this morning the pound has followed most of its peers lower against the US dollar on fears of rising risk of conflict in the Middle East. read more

Soggy US dollar collapses

Soggy US dollar collapses

Sterling was among the biggest winners from last week’s broad US dollar weakness, and regained much of its recent losses since the general election. read more

USD soggy over the festive period

USD soggy over the festive period

The dollar has drifted broadly lower against G10 companions over the course of the week, but the move has less impact with many market participants away from their desk. read more

Sterling glimpses the sunlit uplands of a post-Brexit economy

Sterling glimpses the sunlit uplands of a post-Brexit economy

In a novel change for markets, this morning’s political developments have seen sterling climb up a cliff instead of falling off one. The pound shot higher by more than 2.5% in minutes last night after official exit polls showed the Conservative party with a commanding majority. read more

Sterling Election Primer

Sterling Election Primer

Sterling looks set for yet another night of politically driven volatility as the UK essentially chooses between a massive Tory led fiscal expansion, and an even more massive Labour led fiscal expansion. read more

Sterling unfazed by leaders debate this morning

Sterling unfazed by leaders debate this morning

Sterling’s gains from Monday began to erode yesterday, with the losses extending this morning. Boris Johnson and Jeremy Corbyn squared off in a television debate last night, exchanging barbs on the NHS, trust, and of course Brexit. read more

USDCAD may test $1.33 if core CPI undershoots

USDCAD may test $1.33 if core CPI undershoots

While markets remained in the dark about the possibility of a phase one trade deal being struck between the US and China, and the greenback traded mixed in such an environment, the loonie didn’t fare well in either scenario. read more

Dollar trades sideways

Dollar trades sideways

The US dollar traded with a mixed tone last week, with idiosyncratic reasons and changes in broad  risk appetite driving losses for AUD, KRW and MXN and gains for NZD, ZAR and GBP. read more

This week’s meeting minutes from the RBA and Fed come after a dramatic week for AUDUSD

This week’s meeting minutes from the RBA and Fed come after a dramatic week for AUDUSD

Australian jobs data delivered a gut punch to the currency. The Australian dollar was the worst performing major currency against the greenback last week. read more

Can EURUSD avoid another sustained trip below 1.10?

Can EURUSD avoid another sustained trip below 1.10?

This morning’s German GDP beat may offer some support in the short term. The Eurozone’s largest economy was widely expected to have entered a technical recession in Q3. read more

To cut or not to cut? Risks weigh on both sides for the RBNZ this week

To cut or not to cut? Risks weigh on both sides for the RBNZ this week

The RBNZ faces a finely balanced decision this week, with domestic data offering both positive and negative surprises. read more

Political risk is the key driver for LATAM

Political risk is the key driver for LATAM

Riots and civil unrest predominantly due to the austerity measures has been a key driver for LATAM markets over the past few weeks as government’s attempt to restructure their fiscal liabilities. read more

G10 Views: AUD

G10 Views: AUD

Our view is that the Aussie will be broadly flat in Q4 as the RBA cuts rates once more and US-China tensions ease, but remain unresolved, creating persistent uncertainty. read more

G10 Views: CHF

G10 Views: CHF

Our view is that USDCHF is likely to remain broadly stable in Q4 and Q1, as the effects of easing trade tensions lead to reduced demand for CHF as a haven asset, but the US dollar itself deteriorates. read more

G10 Views: EUR

G10 Views: EUR

Offsetting ECB and FOMC easing is likely to make for uninspiring EURUSD price action in Q4, although the more limited room for rate cuts by the ECB provides a minor source of strength for the euro. read more

G10 Views: USD

G10 Views: USD

The main theme of our updated G10 views is a moderately weaker US dollar, due to the US economy finally “catching down” to the rest of the G10. read more

VIDEO: Ranko Berich talks risks to the eurozone economy

Ranko Berich, Head of Market Analysis at Monex Europe, talks to Estrategias de inversion at the Madrid Stock Exchange about the greatest current risk to the eurozone economy… the US-China trade war. read more

Exuberant US consumer provides large fig leaf for falling investment

Exuberant US consumer provides large fig leaf for falling investment

Headline US GDP growth has printed at a better than expected 1.9% seasonally adjusted annualised rate. read more

ZAR: Medium-term budget puts pressure on rand

ZAR: Medium-term budget puts pressure on rand

Both the South African rand and South African bonds are under pressure this afternoon, with headlines suggesting an outlook downgrade from Moody’s is almost inevitable on Friday. read more

A cut from the Fed, but no further dovishness?

A cut from the Fed, but no further dovishness?

The FOMC will almost certainly cut the Federal Funds rate by 25 basis points this Wednesday, but with markets pricing in a deeper pricing cycle than suggested by recent Fed communications. read more

Euro weakens after Draghi issues a stark warning

Euro weakens after Draghi issues a stark warning

Sterling fell victim to a stronger dollar yesterday along with the usual bombardment of Brexit headlines. read more

Whatever it takes – farewell Super Mario

Whatever it takes – farewell Super Mario

ECB President Mario Draghi takes to the stage for the last time this afternoon before handing over the keys to the office to former IMF chief Christine Lagarde. Markets are expecting no policy change from Draghi following September’s dramatic decisions. read more

Thursday Central Banks

Thursday Central Banks

In September, we wrote a note about how inflation data in Sweden continues to nullify the Riksbank’s rate path projection, which forecast interest rates returning to 0% at the beginning of 2020. read more

US-China phase one deal shows cracks prompting mild risk-off mood

US-China phase one deal shows cracks prompting mild risk-off mood

US-China trade sentiment turned negative, allowing the dollar to make some progress against the G10, especially against risk-sensitive currencies such as NZD, GBP, NOK and AUD. read more

Two deals in one day… was it Black Friday?

Two deals in one day… was it Black Friday?

The euro had a strong finish to last week, with two of its main rivals the dollar and sterling fell due to idiosyncratic factors. Sterling has largely held on to last week’s rally this morning, despite Brexit noise in the headlines turning mildly unfavourable over the weekend. read more

Q4 Forecast Update: Asia

Q4 Forecast Update: Asia

The APAC summit in mid-November is where a breakthrough, or even a narrow preliminary trade deal, may occur. Until then, we expect CNY to act as a buffer against tariffs, trading in the mid-point of the 7-7.20 range. read more

Q4 Forecast Update: CEMEA

Q4 Forecast Update: CEMEA

Stability has been the common feature of the Turkish lira in H2 2019 as the economy shows signs of rebounding and the deflationary trend continues under the watchful eye of Governor Uysal and his cautious cutting cycle. read more

Q4 Forecast Update: LATAM

Q4 Forecast Update: LATAM

The Mexican peso faces considerable downside pressures from both domestic and external risks. The BCB have joined the heard of EM central banks cutting rates to spur on growth and inflationary pressures. read more

GBP Week Ahead

GBP Week Ahead

Boris Johnson finally presented the outline of his plan for a withdrawal agreement. The key question for the immediate future is if talks with the EU result in a withdrawal agreement that the Government is willing to present to parliament. read more

Under pressure ft Jerome Powell and the greenback

Under pressure ft Jerome Powell and the greenback

Soft survey data dominated FX market pricing last week following a substantial downturn in the US ISM manufacturing index on Tuesday. read more

Canada’s economy stalls in July

Canada’s economy stalls in July

After trading in a remarkably tight range last week, USDCAD extends to the upside as data shows Canada’s economy didn’t expand in July. read more

Euro hits a 2-year low as fiscal stimulus measures announced

Euro hits a 2-year low as fiscal stimulus measures announced

This morning’s Eurozone data hasn’t helped the single currency as the bloc’s economic data continues to post negative surprises. This morning, inflation data from France and Germany has added to broad USD strength at the end of the quarter in pushing EURUSD to fresh 2-year lows. read more

Sterling shrugs off supreme court as still a lot to play for

Sterling shrugs off supreme court as still a lot to play for

While it adds to the political excitement, today’s supreme court ruling gives very little in terms of certainty to the Brexit process. read more

Short-term USD liquidity dominated market focus yesterday

Short-term USD liquidity dominated market focus yesterday

Although one 25 basis point rate cut was universally expected well before this week’s drama, there is some risk of a larger 50 basis point cut, a pause in the Fed’s current reduction in its balance sheet, or a dovish revision in forward guidance. read more

US dollar continues to surge ahead of Fed

US dollar continues to surge ahead of Fed

The US dollar is back on the front foot after a relatively bad start to the week. The market’s focus will soon shift onto the upcoming Federal Reserve meeting tomorrow. Forward guidance will be the key for the dollar as markets have already priced in another 25 basis point cut. read more

Oil rallies most since 1988 – markets await US supply response

Oil rallies most since 1988 – markets await US supply response

WTI crude is up 7.8% this morning with Brent touching the 10% mark after rallying some 20% at the open of Asian trading hours. read more

Draghi exits ECB with a bang as EURUSD climbs higher

Draghi exits ECB with a bang as EURUSD climbs higher

The euro had a wild ride yesterday, driven by adjusting fixed income markets following a historic last monetary policy meeting for President Mario Draghi of the European Central Bank. read more

EUR dips below 1.10 ahead of ECB decision

EUR dips below 1.10 ahead of ECB decision

Today is a historic day for the euro and the ECB, which is likely to restart its quantitative easing programme while also cutting interest rates. Today’s press conference at 13:30 BST will be Mario Draghi’s last as President. read more

Markets sit flat as Scandies lead sell-off

Markets sit flat as Scandies lead sell-off

The Scandies were the place to be in the G10 space yesterday as market volatility was subdued. Poor inflationary data from Sweden and reducing inflationary pressures in Norway sparked a Scandie led sell-off in the G10 space yesterday morning as expectations of Scandanavian rate hikes were put on ice. read more

Current EURJPY Strength Is Based On Market Risk Sentiment

Current EURJPY Strength Is Based On Market Risk Sentiment

EURJPY has been an interesting cross over the last few months as it accurately depicts the markets gauge of the US-China trade war and the resulting global growth story. read more

UK Wage Growth Hits 11-Year High

UK Wage Growth Hits 11-Year High

UK labour market data has come in fairly solid, with headline Average Weekly Earnings, including bonuses, beating expectations to reach an 11-year high. read more

G10 mixed ahead of key rate decisions

G10 mixed ahead of key rate decisions

Sterling etched marginally higher against the US dollar yesterday as July’s GDP figures surprised to the upside with a reading of 0.3% MoM growth. read more

Draghi’s final ECB meeting dominates this week’s events

Draghi’s final ECB meeting dominates this week’s events

The euro’s fortune this week and beyond will, in large part, come down to the events of this Thursday’s European Central Bank meeting. read more

What tonight’s vote – and a general election – means for sterling

What tonight’s vote – and a general election – means for sterling

Elevated no deal risk is the overall driver of the current bout of sterling weakness, we estimate that the pound is likely to weaken by around a further 7% read more

Boris may have Labour work for him – sterling expects extra volatility

Boris may have Labour work for him – sterling expects extra volatility

Johnson has said MP’s will still have enough time to discuss Brexit, however, there may be little time left between the new opening of Parliament read more

Sterling rises on hints of compromise

Sterling rises on hints of compromise

Sterling has rocketed to month highs against both EUR and USD after two days of meetings between Boris Johnson and the leaders of France and Germany read more

Strong week of data scrapes sterling off 2 year lows as G7 summit looms

Strong week of data scrapes sterling off 2 year lows as G7 summit looms

Sterling rose to just shy of a high for the month last week after a series of strong data releases seemed to take the edge off Brexit concerns read more

UK Consumers don’t give a fig about Brexit, but no-deal still hangs over sterling’s head

UK Consumers don’t give a fig about Brexit, but no-deal still hangs over sterling’s head

It would seem UK consumers still don’t give a fig about Brexit, and remain more than willing to spend their real wage increases read more

Cracking jobs report…when’s the BoE cutting again?

Cracking jobs report…when’s the BoE cutting again?

The UK labour market remains in cracking shape despite business investment grinding to a halt and growth turning negative in the second quarter read more

Mexico’s Central Bank faces a complex trade-off ahead of Thursday’s monetary policy decision

Mexico’s Central Bank faces a complex trade-off ahead of Thursday’s monetary policy decision

The Mexican peso is exposed to downside pressures given the uncertain scenario, a restrictive stance of the monetary policy read more

PBOC puts Yuan into play for play for trade war

PBOC puts Yuan into play for play for trade war

The yuan is in play as a factor that Chinese authorities are willing to use in the event of further escalations in the US-China trade war read more

Political storm brews in the Med

Political storm brews in the Med

The announcement of fresh elections in Italy has put no pressure on the single currency thus far as fixed income markets take the beating. Two-year Italian government debt now carries positive yield again, rising dome 20 basis points on open this morning. Risk-off sentiment in the Eurozone has led to German 2-year bund yields falling to early-2017 lows. read more

Loonie battles with downside risks; data may not be enough

Loonie battles with downside risks; data may not be enough

A string of positive data surprises last week proved ineffective in supporting the loonie against broad US dollar swings last week. read more

RBNZ to cut rates, RBA to sound dovish but remain on hold

RBNZ to cut rates, RBA to sound dovish but remain on hold

Trump’s threat of new tariffs on China throws a spanner in the works for both antipodean central banks, which will issue rate decisions this week read more

Sterling scenarios become clearer – and it isn’t pretty

Sterling scenarios become clearer – and it isn’t pretty

This Friday’s first look at Q2 GDP will be only mildly relevant for sterling, after the BoE made it clear that it would not be doing any “insurance cuts” read more

Yuan breaks key psychological level as trade wars bite

Yuan breaks key psychological level as trade wars bite

The People’s Bank of China set a soft fix for the onshore yuan this morning which allowed the pressure of the offshore traded yuan to filter into local markets read more

Trump announcing tariffs on China could be a slippery slope

Trump announcing tariffs on China could be a slippery slope

Donald Trump added to the latest batch of market volatility yesterday by extending tariffs to cover all Chinese imports just hours after the Federal Reserve's hawkish outlook on rate cuts.  read more

It’s hard to see how the FOMC can live up to expectations with US data this good

It’s hard to see how the FOMC can live up to expectations with US data this good

As Powell, Williams and others have recently made clear, the FOMC is about to cut rates despite historic tightness in the labour market read more

Buying the sterling dip still requires nerves of steel

Buying the sterling dip still requires nerves of steel

Sterling hovered near two year lows last week, as Boris Johnson was installed as PM and confirmed that his strategy was to insist the EU reopen the Withdrawal Agreement read more

Muscle flexing and toolkit display prepares Mr. Draghi for his final day

Muscle flexing and toolkit display prepares Mr. Draghi for his final day

We expect Mario Draghi will start preparing for a dovish legacy by keeping all options open, reminiscent of his “whatever it takes” speech in 2014 read more

Even after last week’s two year lows, downside risk is far from priced for Sterling

Even after last week’s two year lows, downside risk is far from priced for Sterling

June’s Purchasing Managers indices set the stage for the latest bout of sterling weakness when they were released two weeks ago, showing the UK economy in contraction in the second quarter. Since then GBPUSD has reached its lowest level since April 2017. Given GBPUSD has fallen more than 13% from 2018’s highs to last week’s lows, it’s tempting to conclude that weak growth and Brexit risk are already in the price for sterling. We disagree – compared to the fragile state of the UK economy and its susceptibility to further Brexit shocks, fixed income and option pricing suggests that markets may even be complacent to sterling risk. This suggests further downside surprises in the form of poor data, ongoing regional malaise, and of course Brexit have the potential to push sterling significantly lower, even before the October 31st deadline for Brexit.   Chart: GBPUSD lowest since April 2017 Compared to the Fed, markets aren’t pricing much action from the BoE – yet   Compared to the darkening macro and political outlook for the UK, fixed income and options market pricing is looking rather tame, or even complacent. Fixed income pricing has been cautious about the Bank of England’s likely response to the current UK slowdown – OIS contracts for the December MPC are currently trading at a yield of 0.6%, only 15 or so basis points below bank rate. Fed OIS, in the meantime, is fully pricing three cuts from the FOMC by December.   Chart: Market Pricing of Fed and BoE December meetings shows sterling has further to fall Implied volatility from GBPUSD options markets, in the meantime, is trading at around 8.5% - compared to above 13% in late 2018 during May’s attempts at passing a withdrawal bill through Parliament. In this context, Tuesday’s labour market report and Thursday’s Retail Sales figures will be crucial tests for sterling. Employment was a rate bright spot in June’s PMIs so any weakness here would be a particularly unwelcome surprise. Conversely last week’s BRC retail sales monitor was very weak, while consumer credit growth and savings intentions both point to some degree of belt tightening from UK households. read more

Powell presses pause on dollar rally

Powell presses pause on dollar rally

Jerome Powell left very little doubt about the likelihood of Fed cuts in the immediate future last week. Testifying to lawmakers, Powell said that uncertainties around global growth were weighing on the US economy read more

SARB set to cut on Thursday but won’t do Ramaphosa’s dirty work on promoting growth

SARB set to cut on Thursday but won’t do Ramaphosa’s dirty work on promoting growth

The South African economy hasn’t shown signs of a vigorous rebound in activity following the largest economic contraction in a decade in the first quarter of 2019, with the latest data releases pointing to 0.5% GDP growth for the year. read more

Geopolitics in scope this week

Geopolitics in scope this week

Last week’s price action was dominated by speculation over global policy rates following a dovish turn by the Federal Reserve. While markets have increased their bets on how much the Fed will cut rates, with pricing currently suggesting 78 basis points by January 2020, this week’s geopolitical events are beginning to take the mantle in dominating market focus and sentiment in the run-up to a pivotal G20 meeting. Tensions between the US and Iran continue to simmer after Revolutionary Guard forces shot down a $100m US navy surveillance drone over Iranian airspace. Yesterday saw the release of the White House’s response, following an aborted missile strike last week.  Last night Trump announced the first stage of sanctions on Iran as the US will aim to freeze the assets of leader Ali Khamenei along with other Iranian military commanders. The President suggested further sanctions will be imposed on Foreign Minister Zarif later this week. By turning the screw the Trump administration is sustaining maximum pressure on Iran to bring them to the negotiating table. However, the potential backlash from Iran, who have repeatedly threatened to close the key shipping chokehold that is the Strait of Hormuz, has kept markets on edge this week. Tensions between the US and Turkey continue to simmer in the background following Turkey’s pledge to purchase the Russian built S-400 missile system. The purchase of the Russian defence system puts a spanner in the works for the NATO defence network and prompted the Pentagon to halt the training of Turkish pilots for the upcoming F-35 fighter jets. The Russian defence system is expected to be delivered in July, and recent rhetoric by Turkish officials suggests that the $2.5bn deal between Turkey and Russia will not be reversed regardless of the level of sanctions imposed by the US. Under the 2017 Countering America’s Adversaries Through Sanctions Act (CAATSA) the US could levy further sanctions on Turkish officials and defence companies such as restricting their access to US financial markets. This would reignite tensions between the two NATO members which have only recently subdued following the Pastor Brunson imprisonment and adds to an increasingly tense political landscape. That said, market’s aren’t anticipating sanctions to be levied prior to the G20 meeting between Presidents Trump and Erdogan, but rhetoric from Istanbul and Washington continues to dominate EM sentiment. This was highlighted by the Turkish lira retracing its rally after the release of the Istanbul vote due to Turkish officials voicing their willingness to swallow US sanctions. The move also filtered through into other EM currencies such as ZAR.   Chart 1: USDTRY leads EM sentiment yesterday as evidenced in USDZAR     The G20 summit is not only pivotal for US-Turkey relations but also the headline US-China trade war. Both Trump and President Xi are expected to hold an “extended meeting” after dialogue broke down and further tariffs were levied back on May 10th. As things stand, channels of communication are open in the run up to the lengthy meeting in Osaka, but a threat of imposing tariffs on a further $300bn of Chinese goods still lingers over the negotiation table. The new tariffs extends to an array of consumer products including electrical items and have already been written into legislation of which is set the period of public consultation is set to end on July 2nd. Most recently the US Commerce Department added five new Chinese entities to its exclusion list which bars them from buying US components without prior state approval. Both parties have economic and political incentives to build bridges and cool tensions for a second time at the G20 summit. However, with substantial sticking points such as Intellectual Property theft yet to see any traction, the markets expectations are dramatically low for any further progress between the two economic powerhouses.   Chart 2: USDCNY is far from recent highs (6.9311) however the yuan is at its weakest level since January against a basket of its closest trading partners   This suggests that a ramping up in trade tensions will weaken the yuan but the effect may not be channelled through USDCNY. This is due to the Fed having to cut rates as aggressively as fixed income markets suggest due to downside risks materialising. The PBOC may be willing to hold the USDCNY rate steady and watch the yuan weaken against its closest trading partners (EUR, JPY, KRW, HKD, AUD) For now, US protectionism and the rise of geopolitical tensions is currently the overwhelming force that is dictating financial markets, central banks and the global economy alike, and shows no signs of abating. However, if it does, the turning point may be the upcoming G20 meeting.   Author: Simon Harvey, FX market analyst at Monex Europe. read more

ZAR rallies after Draghi hints at policy easing

ZAR rallies after Draghi hints at policy easing

Despite global growth woes still prominent on investors’ minds, the prospects of lower interest rates and increased liquidity in the Eurozone prompted a surge into the rand and South African bonds this morning read more

Draghi’s legacy: letting the rate cutting geenie out of the bottle

Draghi’s legacy: letting the rate cutting geenie out of the bottle

A full ECB rate cut is now priced in by futures markets for 2019 after Draghi showed his concerns about the persistently low inflation in the Eurozone and the lingering risks to growth, especially stemming from weak manufacturing and export conditions. read more

Key FOMC preview

Key FOMC preview

As the FOMC blackout period rolls on, market participants continue to ask if the current Fed pricing is too aggressive as the dollar begins to trade in a tight range in the run-up to next week’s main event. read more

Conditions in South Africa begin to look up

Conditions in South Africa begin to look up

The South African rand remains the worst performing EM currency month-to-date as Q1’s GDP release roiled investor nerves. However, with much of the sell-off in the rand attributed to souring foreign investor sentiment given last quarters deterioration in economic conditions, the rand may start to show signs of a sharp reversal if the economic data supports an improvement in sentiment. Granular data releases are likely to have increased market impact for this reason as investor’s try to gauge the economic rebound in Q2. Thus far, current economic activity indicators point towards a strong reaction in growth, especially in April, as the effects of load shedding begin to fade.   Chart 1: Current activity monitors point towards a strong rebound in South African growth following a dismal Q1 This has been reinforced today with the strong beat in manufacturing production data for April, with the 4.6% non-seasonally adjusted rise the largest one-month increase since June 2016. Much of the increase can be attributed to the rise in production of basic iron and steel, metal products and machinery (+9.4%) and motor vehicles, parts and transport equipment (+18.6%). The median consensus remains overly bearish on the currency, which has a large reserve of upside factors it can tap into. With the Federal Reserve turning increasingly dovish by the day, the door remains wide open for market reforms from the reinstated President, which will likely have a substantial impact on the rand once publicised. In the short-term, pessimism on South African assets may have peaked as idiosyncratic risks begin to retreat from the markets limelight and economic data shows signs of recovering.   Chart 2: The South African rand starts to claw back heavy losses seen at the beginning of the month as idiosyncratic risks retreat from the limelight Regardless, the risks are still apparent and further quarrelling inside the ANC party, load shedding by Eskom, or bleak commentary from Moody’s could reset the rand back into its path of depreciation.   Author: Simon Harvey, FX market analyst at Monex Europe. read more

Non-farms miss only partly validates expectations for dovish Fed

Non-farms miss only partly validates expectations for dovish Fed

Non-Farm payrolls missed expectations to print at +75,000 in May, far less than the 178,000 median forecast on Bloomberg. Revisions to previous months were net negative by 75,000. Average earnings were up 0.2%, compared to 0.2% monthly growth in May and up 3.1% year on year. On the surface, it certainly looks like there is enough bad news in this report to perpetuate the current dominant narrative of a slowing US economy and dovish Fed. The headline miss, together with a lack of any noticeable acceleration in wage growth, means that these figures have little in them to suggest the Fed’s recent dovish turn will be reversed any time soon. However, these figures don’t justify expectations of three rate cuts from the Fed in the next year. Slowing headline job growth and accelerating wage growth are what you’d expect from a late-cycle economy like the US. In contrast, fixed income markets are pricing for a significant slowdown in growth, less wage growth and a weakened inflation outlook, and even rate cuts from the Fed as early as this quarter. Today’s report does not validate this narrative, but it certainly sets the stage for further USD selling and lower fixed income yields, particularly if next week’s Retail Sales and Inflation data also miss expectation Ultimately, today’s non-farms report is only slightly below expectations and in different circumstances could well be dismissed as consistent with a late cycle economy where job growth is slowing but wages are holding up. EURUSD heads higher as broad US dollar sell off deepens Source: Bloomberg Two additional risks loom over the US economy and weigh on market sentiment   There is an element of self-perpetuating gloom from the fact that the US sovereign curve is inverted over the 3 month-10 year horizon. This has been a reliable indicator of recession in the past and remains concerning even though the strength of the signal today has been distorted by low global yields after decades of central bank asset purchases. The real threat to the US and global economy, as well as financial markets, remains the erratic and dangerous trade policy of the Trump administration. As bearish as current market pricing is for the US, it’s still well short of how bad things could potentially get if the US simply followed through on the current full suite of current threats against China and Mexico. When viewed in this light, current expectations of a bearish Fed start to make sense, or even look optimistic.   Author: Ranko Berich, Head of market analysis at Monex Europe. read more

Trump’s tariff threats weigh on MXN fortune

Trump’s tariff threats weigh on MXN fortune

The Mexican peso opened the European session at its worst levels of the year against the dollar, following the announcement by Donald Trump on a round of progressive tariffs from 5% to 25%, to take effect between June 10th and October 1st, until the Mexican authorities "stop" illegal immigration at the border. read more

What next for May and Sterling?

What next for May and Sterling?

Following the latest failure of her withdrawal agreement, Theresa May’s premiership is over in any meaningful sense.  The only question is when she will finally announce her resignation, and what tone the race to replace her takes? read more

Sterling falls off the Boris Cliff once again

Sterling falls off the Boris Cliff once again

Friday’s collapse of talks between Labour and May confirmed what markets had been progressively pricing in last week: that May’s final attempt at passing her withdrawal agreement in Parliament was likely to end in failure and resignation. The two key things to watch this week will be how the chances of May’s deal evolve, and the tone of the simmering battle to replace her. read more

Sterling pushes towards a 3-month low as May’s tenure looks set to end

Sterling pushes towards a 3-month low as May’s tenure looks set to end

News from Westminster that the Withdrawal Agreement will be put to a vote in the Commons at the beginning of June has brought the Brexit headache back for those investing in British assets. The game of picking the likeliest Brexit outcome has re-emerged, however, this time around market sentiment has deteriorated substantially. With the withdrawal agreement up for a vote for the fourth time this year, Theresa May will be holding out for progress in cross-party talks. Financial markets, on the other hand, are proving more impatient on a cross-party agreement breaking the current Brexit impasse. Brexit Secretary, Stephen Barclay, is right to reference heightened risks to Brexit being revoked or a no-deal Brexit should the Withdrawal Agreement be rejected yet again. The increased risk of such extremities occurring has prompted sterling to sell-off towards 3-month lows this afternoon, with momentum and risk pointing to a more prolonged fall.   Chart 1: GBPUSD pushes towards 3-month low Risks are currently tilted to further sterling depreciation, regardless of whether the Withdrawal Agreement is ratified or not. If opposition parties decide to pass the bill at the beginning of June, it is likely to be Theresa May’s last act as Prime Minister. This would increase the chances of a Brexiteer such as Boris Johnson or Dominic Raab taking over the reins and potentially imposing a harder Brexit than the customs arrangement that is currently being floated. This scenario would likely prove unpalatable for most MPs in Westminster and would increase the chances of a vote of no-confidence being triggered in Parliament. Sterling has a track record of not fairing too well in the run-up to such events. Alternatively, the Withdrawal Agreement could fail to make it past lawmakers for the fourth time this year. Another failed attempt by Theresa May would embolden opposition within the Conservative party and would likely see the 1922 committee intervene. The only upside for the pound is if Labour gets a more entrenched commitment from May outlining that the government's stance is to avoid reversing any previous commitments after June’s vote. The chances of this remain slim, and the Brexit process looks set to approach another pivotal juncture. That said, should Labour find the commitments by the current government as sufficient, sterling will likely see the green light to rebound up towards the $1.34 level against the US dollar. read more

EURUSD nears $1.10 level

EURUSD nears $1.10 level

The recent response by the single currency is the complete opposite to that seen last year in April and May when a surge in global trade uncertainty had the euro quickly sink below the $1.20 level. This time it’s different for the euro, which suggests the currency may be close to a bottom on EURUSD. read more

Bitcoin-Altcoin Spread Suggests different dynamic to previous Crypto Booms

Bitcoin-Altcoin Spread Suggests different dynamic to previous Crypto Booms

Bitcoin is on a tear this week, having strengthened by almost 40% against the US dollar since Friday. read more

Banxico on hold as risks worsen

Banxico on hold as risks worsen

The trade impasse threatens Mexican growth prospects via lower external demand from the US, which accounts for 80% of Mexican exports. read more

Ramaphosa euphoria sweeps SA markets

Ramaphosa euphoria sweeps SA markets

With 85% of the vote counted thus far, President Ramaphosa is likely to retain office for his first full 5-year stretch. read more

US-China: The calm before the storm

US-China: The calm before the storm

With such an important global macro event taking place in Washington today, FX markets float in limbo as the possibility of the trade war resurfacing remains ever-present. read more

Trump’s unsurprising surprises for China

Trump’s unsurprising surprises for China

Last week US President Donald Trump sent shock waves through the markets by saying he would lift tariffs on Chinese goods from 10% to 25% as early as this Friday. Trump’s strategy appears to be to apply extra pressure on the Chinese. However, as the meeting with the Chinese trade delegation in Washington at the end of the week has now become uncertain, he might have hurt the prospects of the US economy instead. read more

South African election preview

South African election preview

South African elections are set to take place on Wednesday 8th May, with the results expected within 48 hours of polls closing. That being said, most polling stations report results within 24 hours so the market reaction will likely occur on Friday. read more

G10 and EM sell-off post FOMC

G10 and EM sell-off post FOMC

Sterling stopped just short of 5 consecutive days trading in the green yesterday as the dollar reigned supreme and took the pound as one of many victims. Even an optimistic Bank of England failed to stem the pound's losses with Governor Carney painting an positive picture of growth and promised future rate hikes - once Brexit is wrapped up of course. read more

Resistance to crude upside looks firm despite supply shocks

Resistance to crude upside looks firm despite supply shocks

Green sprouts appearing through dark soil has become the narrative in FX markets this quarter as global headwinds begin to ease. However, after the strong correction in Q1, the same cannot be said for oil markets as the rally begins to peter out. read more

Eurozone growth laughs in the face of pessimistic surveys

Eurozone growth laughs in the face of pessimistic surveys

The single currency had a stellar day yesterday after both Q1 Flash Gross Domestic Product growth and German Inflation figures left expectations behind them in the dust. read more

Ifo business survey: Schade Deutschland!

Ifo business survey: Schade Deutschland!

The German Ifo business climate brought sobering news, as it signals that a German economic rebound in the rest of the year remains far from certain, while downside risks prove frustratingly persistent. read more

Chinese manufacturing data fuels risk rally

Chinese manufacturing data fuels risk rally

A strong positive surprise in China’s April manufacturing PMI yesterday morning set the tone for the session as investors appetite for risk rose once again. The rebound in the soft data saw China’s manufacturing sector expand for the first time this year, soothing fears over the global growth slowdown. read more

1011 days of Brexit – April fools!

1011 days of Brexit – April fools!

April fool’s day makes it difficult to filter reality and fiction in the media, especially when it comes to Brexit. But here’s what we know so far: April 12 is the new deadline, Parliament will have another series of indicative votes tonight and May will likely have another stab at getting her deal through this week. read more

Another long night in Westminster

Another long night in Westminster

At around 19:00 GMT today, MPs will begin to vote on a series of indicative votes to break the Brexit impasse after lawmakers take control of the Commons business paper, with the results expected at around 21:00 GMT. read more

Egregious Eurozone sentiments spook world markets

Egregious Eurozone sentiments spook world markets

The euro took the disastrous Purchasing Manufacturing data on the chin on Friday and fell as much as a full percent against the greenback, and even more against JPY and GBP. read more

Mo Brexit, Mo Problems

Mo Brexit, Mo Problems

Fortnight. No, not the hit game millennials flocked to play. It is how long the EU leaders gave May to avoid a hard Brexit next Friday. It was decided last night after a horrendously long meeting that the EU would extend the Brexit deadline until April 12. read more

Quelle Surprise by Powell and Co

Quelle Surprise by Powell and Co

Another dovish turn by the Federal Reserve last night sent the dollar plummeting across the board with the broad DXY index falling 0.66%. The revised forward guidance measure showed 11 out of 17 Fed officials are not planning on raising rates at all in 2019, down from the market's assumption of one 25 basis point hike this year. read more

Euro prospects capped by softer wage growth

Euro prospects capped by softer wage growth

EUR held the lines yesterday despite a softer Q4 wage growth figure, that may limit the prospects of strengthening consumer spending and rising core inflation. read more

UK labour market continues to shine despite the bleak Brexit backdrop

UK labour market continues to shine despite the bleak Brexit backdrop but may start to show signs of faltering. read more

EM Currencies Rally in Muted G10 Market

EM Currencies Rally in Muted G10 Market

Emerging Markets rallied against the US dollar as a whole yesterday as markets anticipate further dovish tones from the Federal Reserve on Wednesday. read more

Brexit may be wrapped up this week, but it looks unlikely

Brexit may be wrapped up this week, but it looks unlikely

Sterling gears up for yet another pivotal Brexit week. The next 5 days determine whether we leave the EU with a deal in place in the next month or whether a longer delay to Article 50 will be imposed. read more

Third Time Lucky For May

Third Time Lucky For May

If a deal is pushed through next week in a third meaningful vote, May will request a short extension to A50 such that the legal framework of her deal can be finalised. read more

Fresh highs for Sterling as no-deal “ruled out”

Fresh highs for Sterling as no-deal “ruled out”

The path of least resistance for sterling today continues to be higher as the chances of May’s deal passing or an extension increases, although caution is warranted, as there may be further twists in the tale. read more

Back to square one for May

Back to square one for May

Back to square one for both the pound and Brexit negotiations. Parliament today sees a vote on whether the UK exits the EU with no-deal in place or not on March 29th at 19:00 GMT. read more

Deadline Day for May

Deadline Day for May

The pound is likely to be highly volatile today as the Brexit headlines come thick and fast prior to tonight’s vote at around 19:30 GMT. read more

Finally, some progress on Brexit?

Finally, some progress on Brexit?

The market remains adamant that this week’s indicative votes will lead to a minor extension of roughly 2 months in Article 50. read more

When doves cry – a Mario Draghi story

The euro has managed to drag itself slightly higher from yesterday’s lows, but equity markets were not significantly buoyed by the TLTRO news, possibly due to the limited macro impact of the measures compared to the ECB’s asset purchase program. read more

Dovish BoC paves way for today’s ECB

Sterling continues to gear up for a volatile session next week without any significant data releases this week. Market participants’ attention is firmly on the three major events, the first of which, the meaningful vote, took another blow overnight as scepticism on forthcoming concessions from the EU hit the daily newspapers. read more

Eurozone domestic demand may provide an olive branch for ECB doves tomorrow

The single currency couldn’t match the level of play from the Ajax vs Real Madrid game and ended up in the bottom half of the G10 currency pack, despite hopeful signs from the domestic demand side of the Eurozone economy. Both January Retail Sales and the February Final Services Purchasing Manager Index outstripped the forecasts, lending some tentative support to the thesis that consumers and domestic demand may take the ailing Eurozone economy by the hand. read more

CNY Shrugs off Growth Downgrade

GBP Sterling pared back some of its recent gains yesterday, especially against the US dollar. Brexit will once again be back in focus today as Attorney General Geoffrey Cox will head to Brussels with Brexit Secretary du jour Stephen Barclay in a last ditch attempt to gain further concessions on the Irish backstop. Members of Parliament will vote on whatever the Government is able to put forward on the basis of any last minute concessions next week. This morning’s major sterling data release will be the Markit Services Purchasing Managers Index at 09:30 GMT. Later in the afternoon, Bank of England Governor Mark Carney will testify to the House of Lords Economic Affairs Committee at 15:35.   EUR A good day for global risk sentiment resulted in a bad day for European FX as the euro occupied the lower regions of the G10 FX ranks, finding company in yesterday’s other outcasts; the Scandinavian currencies. Data was actually quite good, with the Sentix Investor Sentiment showing a nice uptick in expectations, lifting the headline reading to -2.2 in March, up from -3.7 in February. This could be a sign the worst is over for the slowdown in the Eurozone economy, although, of course, one swallow doesn’t make a summer. Today will see the Final Services sector PMIs released for individual European Countries, adding up to a reading for the entire bloc at 9:00 GMT. Retail Sales figures follow at 10:00, with both figures giving us some inside in how domestic demand might throw a lifeline to the Eurozone economy now external demand appears to take the backseat.   USD Higher treasury yields seemed to take the greenback by the hand yesterday after a decline earlier on Friday, which had the US dollar gain to slightly more than half of the currencies of its main trading partners. The US trade delegation conducting negotiations with China may have found some extra leverage this morning, as the Asian giant downgraded its growth forecasts to their lowest level since 1990. As the Chinese reluctantly admit the trade war is making itself felt in the economy, the US may be able to quickly strike a favourable deal, which can be a boost to US exports and the US economy. Today sees the ISM Non-Manufacturing PMI at 15:00 GMT, together with New Home Sales.   CAD The loonie remained under pressure yesterday, extending its losses after being routed in the wake of Friday’s dismal Gross Domestic Product data. Canada’s ongoing political crisis deepened as a second Cabinet minister, Jane Philpott, resigned in protest of the government’s response to allegations that officials pressured former Justice Minister Jody Wilson-Raybould regarding a corruption investigation. Although the scandal seems to have had little currency effect so far, they do raise the prospect of increased uncertainty heading into Federal elections later this year.   FX Elsewhere The Chinese yuan appeared to have almost stoically accepted the downgrade of the Chinese their 2019 growth forecast to its lowest rates since 1990 at 6-6.5%, accompanied by the rare admission that trade tensions with the US are at least partially to blame for this. The fact the yuan didn’t jolt on the downgrade at one hand can be explained by the fact this was widely expected, after Manufacturing PMIs sharply deteriorated earlier, pointing to a potential contraction in this vital sector in this year. Another explanation could be that markets appreciate the wisdom of Chinese policymakers to let go their growth target in favour of deleveraging their high debt. In the short run this may imply lower growth, but in the long run this may mean more financial stability - or at least the staving off of a hard landing after sudden debt crisis.   read more

May returns to magic money tree to buy a Brexit deal

Sterling starts the week on the front foot after Theresa May nips to the money tree that bought her a coalition government in an attempt to buy a Brexit deal. The £1.6bn “stronger towns” fund looks designed to swing Labour MP’s from Brexit support towns to vote for the current deal in next week’s second meaningful vote. read more

Fed’s move of caution may look overly bold after resilient US Q4 GDP surprise

The GDP Price Index rebounded to a 1.7% quarterly, reversing the downward trend it had shown since the second quarter of the year. However, the real question may be whether this push will continue in the start of 2019, when the global slowdown and the longest-ever government shutdown might have filtered deeper into the economy. Meanwhile, the US dollar also received some support from Asian markets, where the stalled conversations between Donald Trump and North-Korean Kim Jong Un on denuclearisation, triggered some fears on Asian equities; a risk-off move that led to further haven flows into the dollar read more

May’s dismay and sterling’s joy as amendments pass Parliament

Last night’s amendments saw May’s promises to host votes on a no-deal scenario and an extension in Article 50, should her second meaningful vote attempt fail, become legally binding. Meanwhile, Jeremy Corbyn announced Labour’s official stance to back a referendum should the meaningful vote fail. read more

May retreats, but sterling doesn’t

Today, after Prime Ministerial questions at 12 p.m. the House of Commons vote on a whopping 12 backbench amendments, which include the original Cooper amendment that sought an extension in Article 50 and a fresh amendment by Spelman and Dromey which could give Parliament control a week after the meaningful vote deadline. This is what May tried to avoid, and with plenty of cross-party backing, could untangle much of May’s work yesterday. read more

No-deal shakes sterling

Theresa May tries to maintain control of the Brexit process and face down the Cooper amendment, but threats of a no-deal bursts sterling’s bubble. read more

Talk about movin’ – both May and Corbyn forced to sterling positive concessions

This morning, sterling hit a fresh 4-week high after news broke that PM May will brief cabinet on an extension in Article 50 before addressing Parliament to outline the “progress” that has been made at mid-day. This could well see a vote in the House of Commons, should the next meaningful vote fail, to decide on an extension in Article 50 or a hard-Brexit scenario. read more

Stalling May gives sterling a break

The degree to which Theresa May is running down the clock would definitely be worth a yellow card in football now she most likely needs to seek a 2-month extension. Although, for now, the only consequence is a higher trading pound sterling. GBP is currently taking this news positively as it would diminish the chance of the UK crashing out of the European Union on the 29th of March. read more

Option markets turn optimistic on sterling prospects

Sterling continues to float in anticipation of the next Brexit headline. With little changes thus far, Prime Minister Theresa May has until Wednesday to realistically strike concessions on the Irish backstop before facing a possible revolt in Parliament. Maintaining the topic of revolts, this morning Jeremy Corbyn was told to back a second referendum over May’s deal or face further defectors to The Independent Group. read more

Fed rate hike binary – 0 or 1 in 2019.

Continued uncertainty over future interest rate hikes keeps being aired from Fed officials while balance sheet run-off looks set to end in 2019. Regardless, the market reaction seems fairly muted as investors have already had time to adjust their expectations towards further monetary policy accommodation. read more

Recent rumours keep lifting sterling higher and higher

Rumours of European Union concessions combined with building anticipation that the UK Parliament will take the necessary steps to prevent a hard Brexit from happening was enough to send sterling to multi-week highs against USD and EUR yesterday. Political editors of several UK newspapers postulated on Twitter yesterday that concessions of the EU on the Irish backstop order may be imminent, which could potentially make Theresa May’s Brexit deal palatable enough to cruise through Parliament at the next vote read more

Baby you can drive my car – off a cliff-edge Brexit it seems

Meanwhile, Honda announced it would shut down a major production facility in Swindon after Nissan declared earlier this month that Brexit uncertainty was one of the main reasons not to produce their next generation SUV in the UK. This is an indicator that some of the damage the Brexit uncertainty has done may not be easily reversed, which could limit the upside for a sterling rally in the case we eventually would see a Brexit deal. read more

Flock of ECB doves flying over throws a shadow on EUR

On Friday, the euro dipped to a fresh three-month low against the dollar on the back of strong US manufacturing data and European Central Bank dovish tones. Governing Council member Francois Villeroy de Galhau scared markets by stressing the significance of the European slowdown while comments from ECB´s Benoit Coeure increased expectations of further quantitative easing, should the economic weakness in the Eurozone not prove as temporary as initially asserted. read more

Call 911, its a state of Emergency.

A White House spokesperson announced that the US President will be signing the bipartisan agreement on immigration and border policies to avoid a second government shutdown on Friday, while also declaring a state of national emergency on the humanitarian crisis at the border. Such a move will allow Donald Trump to bypass Congress and secure more funds for the border wall than was previously allocated by the budget bill, setting the tones for further tensions in US politics. read more

Whatever happens to trade, the dollar keeps on rolling, rolling, rolling.

Sterling gears up for another week of Brexit after broadly selling-off last week. The pound remains quite some distance from its 6-month high against the US dollar after weak Purchasing Managers Indices on Tuesday morning. The Bank of England’s net-hawkish meeting on Thursday proved insufficient in clawing back prior losses and the pound ultimately ended the week a percentage point lower against its American counterpart. read more

BoE slashes UK Growth forecast to lowest pace since the financial crisis

Sterling had a percentage point round trip yesterday with the Bank of England’s growth forecast causing much of the volatility. Headlines flashed across Bloomberg stating that the previous November estimate of growth in 2019, measured at 1.7%, was revised down in February’s release to 1.2% - this would be the lowest projected growth since the 2009 recession read more

Aber nein! German manufacturing sector continues to weigh on the euro

The barrage of negative German Manufacturing data seems endless with yesterday’s Factory Orders showing a contraction of 1.6% in December and this morning’s Industrial Production showing a 0.4% decline in the same month. The euro took it personally and declined for the third day in a row against USD yesterday and continues to be under pressure again this morning. read more

Bank of England unlikely to budge, but room for a hawkish meeting

Thursday’s Bank of England meeting will likely see the central bank remain in a bit of a Brexit bind, but clarity over the recent downturn in economic data and the future of inflation could prove net hawkish for the market. read more

Where now for Italy as a recession hits?

The single currency fought off a technical recession in Italy, downwardly revised growth forecasts from Germany, and the seemingly never-ending string of negative surprises in data last week to post a 0.43% gain against the dollar. read more

Euro weathers Italy’s technical recession fairly well

Yesterday the euro pared back some of the strength it had gained earlier, on the back of poor signs of economic performance released during the day. Preliminary GDP data indicates Italy had a 0.2% contraction in Q4, suggesting the country might have entered in a technical recession. read more

Powell opens a dovish door, but Fed doesn’t step through it – yet

GBP As the dust settled after the Tuesday evening Brexit amendment’s, sterling settled in the middle of the G10 currency pack as markets digested its implications. The adopted Brady amendment basically sends Theresa May back to the European Union to fiddle for more concession on the Irish backstop option, although European Union President Jean-Claude Juncker was quick to reply that the withdrawal agreement will not be renegotiated, while he subtly reminded the UK that this strategy increases the chance of a chaotic Brexit. For now, while May tries to force further concessions from the continent, the Brexit news flow looks as if it will subside for a few days. EUR The euro had a fresh boost yesterday after the Federal Reserve directed the dollar towards the floor with a new set of dovish statements. Although possible FED rate hikes cannot be ruled out yet for the remaining of the year, the FEDs monetary policy stance is on the road of convergence alongside the cautious European Central Bank, prompting further strength for the single currency. However, additional concerns on Eurozone growth in 2019 keep mounting as the German Economy Minister, Peter Altmaier, announced the government was adjusting its growth forecast from 1.8% to 1.0% on the back of a disorderly Brexit and global trade tensions. January’s preliminary German inflation release disappointed yesterday with a 1.4% year-on-year rise in January from 1.7% in December, while markets also hold their breath for a possible technical recession in Q4 as well. Elsewhere,  Italian Prime Minister Giuseppe Conte also noted that a “further contraction” could be expected as part of a wider European slowdown. Today we will have more insights when German and Italian unemployment data is released at 08:55 GMT and Eurozone GDP and unemployment comes out at 10:00 GMT. Italian GDP is also released at 10:00 GMT and could also see the Italian economy slip into a technical recession, adding to Eurozone growth woes. USD A dovish Federal reserve threw the dollar under the bus yesterday as a discussion about the pace of the reduction of the size of the balance sheet was more than markets expected beforehand. In the December meeting, Fed Chair Jerome Powell still said the reduction of the balance sheet ran on autopilot. Yet, as expected by many, he had to walk this statement back during the press conference yesterday. Powell stressed that the Fed is still sensitive to a change in economic conditions, something which brought the idea of a taper in balance sheet reduction, or even a complete standstill, to the forefront for markets. Markets may have gotten a bit ahead of themselves, however, as the Fed stating there are conditions under which it will change its policies does not automatically equal that these conditions are actually here, nor does this mean the Fed estimates there is a high likelihood these conditions will materialise in the near future. During the press conference, Powell did mention that the Fed base case of 2.3% growth this year still more or less stands, while in other publications like the Beige Book the Fed in length discusses how wage pressures are spreading through the country, over industries and among different job levels. All in all, this implies the Fed may indeed have become more patient with rate hikes in 2019, but not that it has binned the idea of two rate hikes in the back half of the year altogether. CAD The loonie was among the G10 top winners yesterday from the US dollar weakness triggered by the FED dovish tones. Further concerns over global oil supply, increased by sanctions on Venezuelan exports due to domestic political unrest, have also prompted WTI prices. This morning, crude futures continue to climb upwards amidst a weakening US dollar. The strength of the currency, however, might be curtailed today with the release of the November annual GDP, which is expected to show moderate growth, adding to the decelerating path that the Canadian economy has shown towards the end of the year. read more

May wants it better than just a letter

After all the hype, little materialistically changed last night after an evening of amendment votes in parliament that brings the UK-EU negotiations back to a station that has already been passed. The much anticipated Yvette Cooper amendment, which would legally rule out a no-deal Brexit and include an extension in article 50 if a deal wasn’t in place by mid-February, lost in the House of Commons. read more

Super Tuesday; a day of amendments

Last week’s sterling optimism began to wane yesterday as the vote on ‘plan B’ amendments loomed. Tonight, lawmakers will meet in the House of Common to vote on up to 14 possible amendments to Theresa May’s neutral motion. The potential final form of a Brexit deal may begin to take shape as each amendment commands a clear majority in the House of Commons, however, any amendment passed is not legally binding on the government but in practice, the political pressure would likely bind them in practice. read more

US government reopens, USD closes lower

The USD is hoping for a better week after the broad dollar DXY index fell over half a percentage point last week against its G10 peers. The Federal Reserve’s rate announcement is the main data release for the dollar this week after a record-long US government shutdown ends. read more

The Sun suddenly shines on sterling

Democratic Unionist Party support for Theresa May’s Brexit ‘Plan B’ gave sterling a huge boost overnight, as the currency rose to a respective 2 and 20 month high against USD and EUR. “The Sun” newspaper, not to be confused with the Aztec Sun God Huītzilōpōchtli, reported this morning that the threat of a softer Brexit deal pushed the DUP to pledge support to May’s plan in a private meeting. read more

No-deal Brexit slips further out of sight

Sterling had a strong start to the week, as optimism continued to build that a no-deal Brexit can be avoided and surprisingly firm labour market data was released. The Office for National Statistics released labour market data for November which showed the Unemployment Rate had fallen back down to 4.0% while wage growth was at a post-recession high. read more

Plan A? Plan B? It all looks the same to me

Volatility increased when May stood up in Parliament to announce her “plan B” which looks awfully like plan A but with a set of fake glasses and a moustache on. However, the final shape of the backup plan will only start to take a new form once the voting on amendments commences on the 29th January. read more

May seeks Plan B after the catastrophic loss last week

After the historic defeat of her Withdrawal Bill last week Theresa May is once again set to pull a new rabbit out of her hat that can shake the Brexit process out of its deadlock as she is expected to announce her ‘Plan B’ from 14:30 GMT. May will seek to strike further concessions with the EU to clear up the contentious Irish backstop mechanism. read more

Dollar rallies as US-Sino relations ease

Yesterday saw another choppy session for GBPUSD as Theresa May stared down another question on her authority. After winning the vote of no confidence, brought up by Labour leader Jeremy Corbyn after the historic defeat of the withdrawal deal on Tuesday night, the Prime Minister took to the steps of number 10 to slander the opposition leader for not planning to attend the cross-party talks. read more

Record defeat for May see’s pound rally

Sterling ended yesterday’s session flat on the whole after major swings following a hammer blow for Prime Minister Theresa May’s Withdrawal Bill. The pound fell half a percentage point in the immediate aftermath against the US dollar, but then promptly rallied as May offered cross-party concessions and the likelihood of the March deadline being extended increased read more

Judgement day for May

Sterling flirted with a half of a percentage point rally yesterday after ITV sources claimed that the Conservative party’s eurosceptic European Research Group would side with Mrs May in today’s meaningful vote. This was short-lived, however, after minister Steve Baker confirmed that the group- a prominent opponent of May- would indeed vote against her withdrawal bill. read more

USD remains near three month lows after longest government shutdown in history

The US dollar bounced back on Friday from three-month lows seen on the DXY index, after a week where several downside risks became more prominent. The end of last week was characterized by more dovish remarks of Federal Open Market Committee members, among which its chair, Jerome Powell. read more

Fed pause all but priced in

EUR reached a 12-week high against USD yesterday during the early hours of the Asian session, only to encounter a vicious reverse in faith later which eventually prompted the single currency to tumble towards the bottom end of the G10 currency ladder. read more

Dovish Fed squawks lends EURUSD wings.

The euro had a bright day yesterday, as the weakness of the dollar provided a percentage point of gains to the single currency, which sat at levels not seen since last October. The 11-week high on the cross came after dovish tones from US monetary authorities, despite domestic data still offers no support to the prospects of the Eurozone. read more

Dollar slumps as Trump’s speech does not signal swift end of US government shutdown

Soggy sentiment surrounded sterling yesterday as no progress appears to be made in the process of getting any Brexit deal through Parliament, as the ‘meaningful vote’ of next week draws ever more near. Despite that, this morning the Great British Pound has risen itself onto a stronger footing, after 20 Tories disobeyed the party’s whip and voted along with a Labour proposal that limits the powers of the Exchequer to cut or raise taxes in case of a ‘no deal’ Brexit scenario. read more

FED doves continue to fly

May continues to pin her hopes on squeezing a last-minute concession out of Brussels that will be enough to convince Parliament to back her deal. read more

Smashing US job report and dovish Powell strap greenback in rollercoaster

Sterling spent most of the day Friday on the offensive after a positive headline on the Services Purchasing Manager Index for December at 51.2 set a positive mood. Unfortunately for sterling the entire picture is less upbeat, with the composite of the Services, Manufacturing and Construction PMI pointing towards a growth of merely 0.1% in December. read more

Trade wars may not be so easy to win after all – and that’s a good thing.

After taking a good old fashioned nose dive early morning during the Asian session yesterday, sterling not only pared its losses, but even managed to close above its opening level eventually. The Construction Purchasing Manager Index will be one of the last in line to claim credit for this as it came in virtually bang in line with expectations at a score of 52.8. read more

JPY jump sends warning shot to markets for 2019

Sterling has experienced one of the worst starts to year in years yesterday with losses across the board, which apart from paring against the dollar, are worsening against other currencies this morning. A pretty solid beat on the Manufacturing Purchasing Manager Index with a score of 54.2 was to no avail for GBP, as Brexit deadlines drawing closer appear to dominate sentiment. read more

Government shutdown keeps USD pinned

The Canadian dollar had a relatively calm end to the year on Monday, though it was the worst performing G10 currency against the US dollar last quarter. Worsening risk appetite and plummeting crude oil prices were to blame, while domestic conditions in Canada seem reasonably strong for now and the Bank of Canada remains on a data-dependent hiking cycle. read more

Sterling enjoys absence of politicians and Monex Europe wishes you a splendid 2019

Politicians can take holidays more often, that is at least according to the pound sterling which was among the top gainers on Friday and continues to advance this morning as silence sovereignly reigns over Westminster. The only thing bubbling today will be the champagne tonight as little data comes out today for the UK. More fireworks can be expected later in the week with the Manufacturing, Construction and Services Purchasing Manager Indices coming out on Wednesday, Thursday and Friday respectively. read more

Dollar drops to one-week low amid US shutdown

Over the festive period, it has all but ground to a halt for sterling with a big Brexit sized elephant still in the room. With little filling the data calendar up until the new year, all eyes will be firmly fixated on Brexit headlines that will likely resume in the new year. Parliament doesn’t reconvene until the 7th of January, but markets will await political headlines before then. read more

Positive post-Christmas sentiment turns US markets green

USD sat comfortably in the green zone yesterday on the back of a surge in stock markets. With the S&P and the Dow Jones indexes rallying by 5% and the Nasdaq having its largest one-day increase since 2009, Wall Street seems to be enjoying some belated Christmas cheer. read more

US equity markets in meltdown as Mnuchin meets with Bank CEOs

Sterling traded in a relatively tight range for most of last week, and remains calm this morning as global equity markets continue to flash red. There was little newsflow of relevance to sterling over the weekend, as the usual holiday lull in politics set in. The only data of note this week will be Friday’s High Street Lending figures at 09:30 GMT from UK Finance. read more

CREAM dolla dolla bill y’all – turmoil haunts greenback before Christmas

2.45 metres was the World Record set by Javier Sotomayor of Cuba in the men's high jump, something the loonie may begin to target if it doesn’t break out of its steep bearish channel. read more

Fed lowers dots and props up G10 gains this morning

Before the Federal Open Market Committee meeting yesterday, expectations on the viewpoints of the Fed were diverse, a situation that surprisingly hasn’t changed much after the meeting as markets are still trying to make up whether they saw a relatively hawkish, or a relatively dovish FOMC yesterday. Markets were positioned for a very dovish Fed, but as the Rate Statement was more upbeat than expected, USD rallied, although it came under pressure again this morning. read more

Draghi is an optimistic dove

A new species has been discovered today in the Governing Council; the optimistic dove. European Central Bank President, Mario Draghi, once again displayed the variety of tones in his plume as he delivered a dovish message, but continuously guided the attention of the listener to the silver linings. read more

Tonight’s vote a barometer for parliamentary appetite for May’s deal

If May’s boisterous reception in the commons and tweets from Tory MPs are to be believed, May is more likely to survive tonight’s vote than not. This appears to be the market’s base case, with sterling rallying slightly this morning towards the 1.26 handle against USD despite the possibility of utter disaster in the event May loses and the UK heads for a no-deal outcome. read more

UK investors continue to hedge in light of greater uncertainty

Following on from yesterday’s humiliating dodge, May now goes to Brussel’s to discuss going forward with Jean-Claude Juncker. Little has changed to our base case, despite the formal rejection of her draft Withdrawal Treaty not taking place. The $1.25 level has been realised, and May now goes to Brussel’s in an attempt to fudge contentious issues to force marginal voters to stand behind the government when the deal is finally put to a vote sometime next year. The EU has already rejected the idea of the deal being re-opened for renegotiation, but are willing to give greater clarity and interpretation to the grey lines – one of which is the backstop mechanism. This may prove sufficient if greater clarity on the UK withdrawal to the backstop mechanism is given. May could indeed gain further concessions and run the clock down in the meantime, and by doing so increasing the consequences of her deal not being accepted, but any minor tweaks to the Treaty are unlikely to be legally binding. It is our belief that this won’t be realised prior to the New Year, and May will give the Commons another chance to stop a no-deal Brexit scenario occurring sometime in January. Regardless, both sterling and sterling option pricing remain highly sensitive to the increasing uncertainty facing them. With the March deadline rapidly approaching, the cost of 3-month protection against sterling weakness is edging towards referendum levels, while the cost of 1-week protection is also rising. The implied volatility curve has inverted for the pound with both short-term and 3-month options continuing to consolidate gains. What does this mean for sterling? The $1.2515 level may continue to be tested but below which there remains little to prop sterling up from a technical standpoint until $1.23. Therefore, the $1.25-26 handle may become the new $1.27 level where sterling previously gripped on to prior to yesterday’s news. Regardless, the macroeconomic data is redundant for now, and the pounds price action will be dependent on rumblings from the continent. Meanwhile, one cannot rule out the repeated calls from Parliament for May’s head and a second referendum, but this remains a tail risk in our view. Risks to this outlook remain, however. May could still not find enough support in Parliament and the deal is off the table prior to March. This will bring a myriad of problems if it is the case, as May would most probably have to step down as Prime Minister. This opens the door for a new government and greater uncertainty will be added to the Brexit process. Furthermore, the Tory party could become increasingly disgruntled and force May out as her current middle of the road stance isn’t suiting either side of the factious party. The possibility of May not being the British PM in March remains highly probable, but not as probable as our base case due to the appetite from both the EU and Parliament to have a deal in place by March. Chart 1: Sterling holds strong at $1.25 for now, but has room to fall further if pressure on May and uncertainty over Brexit ramps up Source: Bloomberg Chart 2: For this reason, the premium on sterling downside protection over the next 3-months edges further towards referendum levels Source: Bloomberg read more

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Ranko Berich

Ranko Berich

Head of Market Analysis

Ranko Berich heads up the team of analysts at Monex Canada and Monex Europe. The analysis team provide timely insight and commentary on developments in currency movements and their drivers.
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Simon Harvey

Simon Harvey

FX Market Analyst

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Olivia Alvarez

FX Market Analyst

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