News & Analysis
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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.
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.
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.
The dollar spun around in yesterday’s session to close higher in the afternoon. General risk appetite diminished in the afternoon of the European session, with equities falling in the US and treasuries rising. California, Texas and Florida recorded their highest daily death count due to the virus on Wednesday, with figures yesterday showing 120 new deaths in Florida alone.
Fiscal stimulus and positive data from the sunbelt supports risk appetite and sends the dollar lower
The greenback fell against all of its G10 peers yesterday as risk sentiment was bolstered by fiscal pledges in Europe and the UK. A variety of fiscal measures were announced, including subsidies for employers bringing back furloughed workers or hiring young workers and direct funding increases for housing and the Department of Work and Pensions.
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.
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.
All eyes will be on the budget today and the implications it has for the OBR’s next fiscal projections set for release on the 14th July. The reaction in Gilt markets is likely to be in focus, especially with the front-end of the curve, except the 1Y, trading with a negative yield already.
The aussie dollar leads losses in the G10 space today as the state of Victoria imposes a six-week lockdown after the surge in new cases continued despite their best efforts to control the outbreak previously with lockdowns of certain areas.
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.