News & Analysis

GBP

After a long weekend, London traders will be returning to their desks asking the same question as the politicians returning to Westminster. That is, how many letters of no confidence are we away from reaching the required 54 to ignite a vote of no confidence in the Prime Minister? Currently, only Graham Brady, the head of the backbench 1922 committee, knows the answer but even those close to the Prime Minister are now saying it is a question of when rather than if. Most are speculating that a vote could be triggered as early as this week. The result of which will only add further downside risks to the pound, as political uncertainty may incite defensive trading under the increased prospect that a defiant Boris Johnson takes a harder stance on the Northern Ireland protocol to save his own skin, or a new Conservative Prime Minister follows suit. In addition to this, a vote of no confidence also increases the possibility of a political vacuum, should a newly appointed Prime Minister fail to gain the support of parliament. While this looks slim given the Conservative’s majority in parliament, the probability of an election amid the cost of living crisis has also increased. Outside of the political space, final PMIs for May are released this week along with the Bank of England inflation attitudes survey on Friday.

EUR

The single currency was one of the better performers against the dollar on Friday, with losses limited to just 0.25% on the day following a dollar positive payrolls report. EURUSD’s resistance was likely due to valuation effects, while supportive ECB pricing likely played a part. This week, the European Central Bank meet, but with purchases under the Asset Purchasing Programme set to complete at the end of the month, it is unlikely that they will move to increase rates ahead of their signalled lift-off in July. However, there remains a non-negligible risk that the ECB do raise rates earlier as the only constraint against doing so is a self-imposed sequencing rule. With markets pricing just 1.7bps of tightening at Thursday’s meeting, an earlier rate hike would undoubtedly send EURUSD north of recent highs. Today, the eurozone data calendar is empty as most major eurozone nations enjoy public holidays.

USD

The US dollar starts the week on the back foot this morning, with US and European equity futures trading higher after a constructive Asian equity session. The dollar’s decline is minimal, however, as most G10 currency pairs continue to trade in recent ranges. This week, currency traders will be paying close attention to the incoming inflation data released on Friday. While May’s CPI report is unlikely to dent expectations for the June and July meetings, especially after Friday’s payrolls report showed strong employment growth last month, it will likely prove influential for the pricing of September’s meeting and year-end expectations. Outside of the CPI report, events are light for the greenback this week as the Federal Reserve partakes in a media blackout ahead of the June 15th meeting. Amid the light data calendar, news that the US may lower tariffs of Chinese imports and allow Iranian oil to re-enter the global market even without a revival of the 2015 nuclear accord in an attempt to cool inflation pressures will be closely followed.

CAD

Similar to the euro, the Canadian dollar buffered the broad USD bid on Friday reasonably well. A stronger US growth outlook bodes well for Canadian exports, and thus the loonie, despite the continued pressure on US stocks. Additionally, momentum was on the loonie’s side after a hawkish speech by BoC Deputy Governor Beaudry sparked an extension in the CAD rally, sending the currency 0.69% lower. This week, CAD traders will be gearing up for the BoC’s financial stability report on Thursday, which is released at a time when house prices in major cities such as Toronto are experiencing continued declines, and May’s labour force survey released on Friday. This morning, with the risk backdrop more supportive across asset classes, the loonie has reversed most of Friday’s payrolls-induced losses.

 

 

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