News & Analysis


The pound rose marginally in early trading, as markets got the first data release in what is likely to be a make or break week for the Bank of England’s upcoming rate decision this morning, with the release of labour market and wage data. The release contained little in the way of easy answers for policymakers at the Bank of England, with weakening labour market data offset by a stronger-than-expected wage release. In terms of employment, this morning’s release showed unemployment ticking up slightly to 3.8%, against an expectation for this measure to remain at the previous level of 3.7%. This was accompanied by a rise in employment of 169k, versus only 50k anticipated. With this being driven largely by an increase in part time work it seems to point towards emerging slack in the UK labour market, just as the BoE would like to see. However this does not yet seem to be translating into wage pressures, with wage data coming in substantially above expectations, with weekly earnings flat on the previous month at 5.9%, and 6.6% when stripping out bonuses, and in contrast to the significant falls that were anticipated in both measures. Despite the headline data suggesting the Bank of England’s upcoming decision is finely balanced, signs that wage pressures are coming off of the boil in more timely metrics and labour demand is subsiding suggests to us that the BoE has enough cover to hold rates and joining other central banks in a data dependent stance come May 11th. As we have previously argued, this isn’t necessarily a net-negative for the pound.


Despite repeated attempts, the single currency failed to climb back above the 1.10 handle in yesterday’s session as markets continued to buy back into the dollar on signs that the Fed wouldn’t necessarily be forced into cutting rates this year just as quickly as markets had expected. With very little in the way of economic developments out of the eurozone yesterday, this saw the yield spread between the US and German 2-year bond widen further. The biggest story out of the eurozone yesterday came from Eon, which is set to increase its electricity prices in Germany’s most populous state and its largest industrial region, North Rhine-Westphalia, by 45%. This news raised concerns not only because of the effects it will have on inflation, but also because Eon is the market leader and is likely to set a precedent for other marketers to raise prices as well. Today, the eurozone economic calendar remains light, with just the ZEW measure of sentiment schedule for Germany and the eurozone as a whole at 10:00 BST.


The US 2-year did a lot of the heavy lifting in FX markets once again yesterday. Following on from hawkish comments by Fed Governor Waller on Friday, markets continued to price out rate cuts from the Fed this year, with this trend only extended further once the New York Empire manufacturing PMI printed well above expectations at 10.8 – its strongest reading since July 2022. Unlike other PMIs, the headline New York Empire measure isn’t a composite of its components but is instead a separate question on general business conditions. Nonetheless, the details of the report were also firm with six-month capital spending intentions rising and both the new orders and shipments sub-indices climbing to their highest levels since April 2022. The data, even though volatile on a monthly basis, fed into the market’s priors and saw the US 2-year yield extend its rally to 4.2%. This was largely driven by markets pricing out rate cuts from the Fed as opposed to a higher terminal rate, with around 45bps of cuts now priced in for this year following May’s meeting. In FX land, higher US yields shook USD shorts a bit more, resulting in a 0.52% rally in the DXY index to leave it 1.11% above its year-to-date low.

This morning following a positive beat in China’s Q1 growth data, the dollar is back trading on the defensive. Leading gains against the greenback is the Aussie dollar (+0.5%), due not only to its exposure to Chinese growth conditions but also a fairly hawkish set of RBA meeting minutes. While the dollar is trading marginally weaker heading into the European open, its losses are fairly contained considering Chinese growth printed 0.2pp above expectations at 2.2% QoQ. This can largely be attributed to the composition of China’s GDP reading, which was heavily tilted towards domestic consumption as industrial production and property investment both undershot expectations. For this reason, while a rising tide lifts all boats, China’s GDP beat this morning isn’t having the outsized impact some market participants may be used to. Looking ahead for the day, the economic calendar is fairly light in the US with just March’s housing starts and April’s New York services activity data scheduled. Beyond that, one eye will remain on US bank earnings, with Bank of America, BNY Mellon and Goldman Sachs all set to announce.


The Canadian dollar weakened slightly against the US dollar on Monday, remaining largely insulated from the broad USD rally that was far more visible in other pairs. For the most part, the FX move was driven by interest rate traders pricing out some Fed rate cut expectations, supported by an unexpectedly strong US manufacturing survey and hawkish comments from Fed officials. A similar dynamic played out in Canadian interest rate markets, but not in Europe, the UK, or Japan, which helps to explain the loonie’s relative outperformance on G10 crosses. Two pieces of mid-tier Canadian economic data were released yesterday. One report noted that foreign investors are still willing to buy Canadian assets as non-Canadians bought C$4.62bn of Canadian securities in February, which increased from C$4.21bn January. In addition, wholesale sales contracted by -1.7% in February, which was roughly in line with consensus. It’s worth noting, however, that despite the decline, the level of wholesale sales is still fairly elevated. On today’s calendar, we will receive the latest CPI reading for Canada at 08:30 EST (13:30 BST). The range of estimates is fairly narrow relative to recent prints, and the median economist expects a sizable base-effect-driven decline to 4.3% on the headline figure. Shortly after the inflation data is released, both BoC Governor Macklem and Deputy Governor Rogers will appear before the House of Commons standing committee on finance at 11:00 EST (16:00 BST). While it may be too soon to get their read on the latest inflation numbers, markets will be tuning into the testimonies for another read on what the Bank’s appetite is to hike rates again.



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