News & analysis


Sterling tested breaking lower against the dollar yesterday as news of potential EU sanctions over breaches in the Brexit trade deal weighed on sentiment. However, the pound remained resilient as the dollar broadly traded weaker, providing sterling with a level of security. In addition to this, comments from Bank of England Governor Andrew Bailey leaned to the hawkish side ahead of Thursday’s meeting. Speaking with the BBC, Bailey stated that the rise in back-end yields, which have filtered into higher interest rates in parts of the economy, “is consistent with the change in the economic outlook”. His comments starkly contrasted with that of the European Central Bank who last week stepped up asset purchases for the next quarter in order to stop yields rising further. The remarks by the BoE governor raised some eyebrows, however, as the Bank usually enters a communication blackout in the week or so prior to the meeting. Today, sentiment around the pound remains weak with GBPUSD sitting 0.5% lower,, while the magnitude of losses is replicated against the euro. Sterling traders will now keep a close eye on how tensions over the breach in the Brexit deal with regards to Northern Ireland plays out, while also positioning themselves ahead of Thursday’s Bank of England meeting.


Yesterday’s session included a modest loss against the dollar amid broad USD strength while setbacks in AstraZeneca vaccines weighed on the euro. Germany, France, Italy, Portugal and Spain joined the growing list of countries to suspend the Astra vaccine after the Netherlands halted the shot on Monday, causing yet another delay in the EU’s inoculation programme. The suspension comes despite the World Health Organization reiterating there is no proven link between the reported possible side-effects and the shots given. EU health ministers will meet today to discuss each nation’s progress and will release a document tomorrow citing how the reduction in infections may raise the prospect of restriction easing. EURUSD continues to trade in the middle of last week’s range despite the European Central Bank’s efforts to ramp up bond-buying to drive down yields, signalling that virus conditions, the lockdown situation and the vaccine roll-out continue to dominate euro price action. At 10:00 GMT, markets will watch the March ZEW survey from Germany – an indicator for economic sentiment in the eurozone – which is set to show a continued wide gap between the current situation and the future expectations index. Consensus sees the current index rising moderately to negative 62 up from -67.2 while the expectations index is set to rise to 74.0 up from 71.2 in February. As the survey includes opinions of financial professionals, the recent stock market rally may have helped to push up the survey data moderately despite real economic activity being weighed down by the lockdowns.


The US dollar rose moderately vs most G10 peers yesterday, with the dollar index rising 0.16% over the day in the absence of fundamental drivers. The increase extended through this morning ahead of US retail sales at 12:30 GMT and tomorrow’s FOMC meeting. The retail sales are set to show a correction from January’s over the odds spike that occurred after the distribution of the $600 individual checks as part of the fiscal stimulus bill in Q4 2020. Consensus sees the core reading falling by 0.3%. At 13:15 GMT, US industrial production is set to show a mild correction to 0.6% from last month’s 0.9% following a similar narrative of a correction from January. Both readings could induce some trading opportunities for USD traders, although movements in fixed income markets will likely continue to dominate FX price action today along with any developments in risk sentiment.


After a strong week last week, the loonie continued in the morning of yesterday’s session to grind fresh highs against the US dollar, but ultimately failed to hold onto them and closed slightly lower relative to its opening price. This morning, sentiment in markets has shifted and the Canadian dollar finds itself on the backfoot. News of EU countries banning the AstraZeneca vaccine has weighed on the Canadian economic outlook. With the rate of vaccine distribution in Canada already lagging other major peers, the potential for one of the two vaccines approved to fall out of the distribution cycle poses a substantial downside risk. While Canadian Prime Minister Justin Trudeau reiterated the government’s official findings that the vaccine remains safe, it has done little to dissuade public perception. Over the weekend, about 8% of people in Montreal, Canada’s second-largest city, refused the vaccine once they were informed it was the AstraZeneca jab. The loonie’s price action is likely to be linked with how the AstraZeneca story materialises given Canada’s reliance on the jab to increase the pace of distribution, especially considering it’s easier means of storage and delivery.


The Australian dollar is in focus this morning after the release of the Reserve Bank of Australia’s meeting minutes overnight. The Aussie currently trades 0.44% lower against the dollar, making its losses in the G10 space second only to the pound. After commitments by the RBA last week to maintain its 3-year yield target, the dovish reiteration in the RBA’s meeting minutes continues to push back speculation that the central bank will err on the hawkish side as their economic recovery leads the G10 recovery along with New Zealand. The dovish reiteration by the RBA has seen the 10-year yield curve drop by nearly 10bps, while the spread between April 2024 bonds – the longest bond bought under the 3Y yield curve control target – and the next maturity bonds, November 2024, touched its tightest levels of the month. The dovish set of minutes follows on from the RBA’s statement last week and comments from Governor Lowe that current interest rate expectations are too premature; the Bank will not be hiking late next year or in early 2023 as things stand. The comments and policy announcement last week were coupled with the RBA fine tuning its bond-lending programme as it made a facility by which the market can only borrow against the April 2023 and April 2024 bond. By doing so, it charged a higher premium to borrow against at 1% compared with the 0.1% yield the bond commanded. This shook short-sellers out of the market and reduced speculation that the RBA would give up fighting fixed income markets and quit its yield curve control programme.



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