News & analysis


Sterling struggled to reclaim ground it lost on Wednesday after the US CPI release as no fresh catalysts were on the horizon. UK economic events centred on Bank of England Governor Andrew Bailey. When speaking at the citizens’ panel event, Bailey stated that the BoE were watching inflation “very carefully”, although his comments stopped short of providing markets with any insight as to what the general feeling is within the MPC regarding the latest inflation developments seen globally. Today, nothing is scheduled on the UK front for markets, leaving the pound at the mercy of broader market pricing ahead of next week’s stage 3 of reopening.


The euro wasn’t bothered by domestic headlines during the past days as US data dominated price action in currency markets and most eurozone countries enjoyed a bank holiday yesterday. This morning, the currency is trading in the green against the majority of the G10 basket as markets remain optimistic of recovery prospects in the eurozone. Germany is set to ease restrictions further in the coming days after the national contagion rate fell below a key level for the first time in nearly two months. Some states have already begun easing lockdown restrictions, and others are likely to follow if the daily case count remains at this level. Germany has already loosened restrictions for those who have been fully vaccinated or who have recovered from the virus, and further easing would allow the services sector to kickstart their recovery soon, which bodes well for the euro. With today’s data dock being light for the eurozone, the focus turns to general risk sentiment and US data in the afternoon.


The US dollar held onto its gains from Wednesday’s CPI release throughout yesterday’s session as elevated inflation expectations had a visible impact on equity and fixed income markets, with the US 10Y yield touching 1.7% again. Yesterday’s Producer Price Index figure further stoked inflation fears when it came in twice as high as the consensus of 0.3%, however, with the Fed anchoring policy expectations, real yields remained well-behaved. Rising inflation expectations kept nominal yields elevated though, which helped stabilise the dollar as it traded in the middle of the G10 currency board. The greenback sustained losses against high beta currencies, while it increased gains against NOK and CAD. Meanwhile, US weekly jobless claims fell to a pandemic low, further extending the dollar move until this morning when the currency lost ground within the G10 space. Today’s data dock is centred around the US, with retail sales and industrial output scheduled for release at 13:30 BST. With policy expectations now stable, a large upward surprise is likely needed for the dollar to regain its strength from yesterday.


The loonie was placed on a one-way directional course in yesterday’s trading session as it continued to unwind recent gains, falling 0.25% against the dollar to book a 0.51% loss over the past two trading sessions. Yesterday’s session focused on a speech given by Bank of Canada Governor Tiff Macklem to the Atlantic Canadian universities. Comments surrounding the latest monetary policy decision, which saw the BoC taper QE purchases and bring forward market expectations around a rate hike, were largely absent. However, the Governor did touch upon the fact that the latest CAD gains could become a headwind to the economic recovery. The Canadian dollar, which is up 4.7% year-to-date could become a problem “if it moves a lot further”, said Macklem. “That could have a material impact on our outlook and something we’d have to take into account in our setting of monetary policy” he went on to say. The Bank of Canada isn’t known for making explicit comments about the strength of the currency, or at least it hasn’t done so since Macklem took over from Governor Poloz in June 2020. The comments, although limited, could put a psychological headwind into play against the loonie, which has been the most popular currency to go long on so far this year.



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