News & analysis


Sterling staved off pressure from the broad US dollar for the most part of yesterday’s session, with GBPUSD trading roughly flat into the Bank of England decision at noon. Despite some murmurs that the BoE could taper its QE programme, or at least signal it would begin to taper at subsequent meetings, the central bank altered none of their policy framework despite positive health and fiscal developments since February’s meeting. This resulted in front-end yields falling somewhat as the Bank’s passive approach took an edge off of rate hike expectations, with sterling succumbing to the broad USD strength as a result. Today, the pound looks to retrace yesterday’s losses, but overall it has been an indecisive week for the pound despite key central bank announcements.


The euro spent yesterday’s session paring back most of the gains realised a day earlier vs USD after the Fed came out with a dovish surprise as virus developments keep punishing the euro amid rising Covid-19 cases and setbacks in the EU’s vaccination programme. France is locking down the Paris area for four weeks as the nation recorded over 35,000 new cases in 24 hours. All non-essential shops will be closed again, although schools remain open this time around. Meanwhile, the European Medicines Agency gave the green light for EU countries to resume with the AstraZeneca vaccines as the benefits of the shot outweigh the risks. While this is no surprise, the question markets will now face is whether the uproar around the shot has taken a toll on public confidence, especially considering many EU countries already faced high levels of scepticism around the vaccines to begin with. With these downside risks to the euro adding to the narratives already broadly weighing on the euro – such as the ongoing lockdowns, slow-going vaccine roll out and elevated US yields – EURUSD may face more challenges today. For now, markets turn to the ECB’s Panetta at 10:45 GMT for further cues.


Following on from Wednesday’s dovish Fed meeting, and the broad USD weakness exhibited afterwards, fixed income markets started to steepen the treasury curve again. The price action in fixed income markets merely unwound Wednesday’s move, suggesting markets weren’t too convinced by the Fed’s outlook on the US recovery and the projected path of rates. The emphasis is now on the Federal Reserve to reiterate its message at upcoming events. While the repricing in fixed income markets led to a broad rebound in the dollar, the greenback trades softer today across the board as back-end rates fall, placing less pressure on other G10 sovereign curves. President Biden yesterday announced that he had met his goal of administering 100m vaccinations in just 58 days, 42 days ahead of the initial schedule. The next vaccination goal will be outlined in the coming week. Meanwhile, the focus remains in Washington after President Biden eluded that the US  would impose punitive sanctions on Russia in response to their election meddling on Wednesday. Reports suggest the US is contemplating more sanctions to block the completion of the Nord Stream 2 pipeline linking natural gas delivery from Russia to Germany. Meanwhile, senior officials from the US and China continue talks today after a tense outing yesterday, where topics such as human rights violations, trade and international alliances were discussed.


After eight days of consecutive gains against the US dollar, the loonie took on some water yesterday amid a rebound in US yields and a significant drop in crude oil prices. Brent oil and WTI both fell over 9% yesterday, pushing prices below $62/b and $60/b respectively as traders weighed signs that European demand could remain sluggish with France announcing new local lockdowns and data showing crude remains plentiful. This morning, the Canadian dollar recovered modestly along with crude oil markets while domestic headlines remain sparse. For today, the loonie will likely take cues from developments in US yields along with oil prices before traders turn to Canadian retail sales at 12:30 GMT which are set to show a mild improvement from -3.4% to -3.0% in January.


The Japanese yen sits 0.2% higher this morning after the Bank of Japan outlined the results of its long-awaited policy review. To improve the sustainability of loose monetary policy, the central bank embarked on a few tweaks. However, despite looking like hawkish tweaks on the surface, Governor Kuroda emphasised the adjustments were made to provide sustainability to its commitment of loose monetary policy and driving inflation back to the 2% target. The central bank’s adjustments were three-fold. Firstly, it expanded the range in which 10-year JGB’s can fluctuate around 0% from 0.2% on either side to 0.25%. Additionally, the BoJ scrapped its ¥6trn guide for annual ETF purchases, while maintaining the ¥12trn upper limit so it can step into markets should sentiment deteriorate. In doing so, the central bank aimed to take a step back from equity markets as their stockpile of assets grows, while they also expanded the ETF’s they can buy from the Nikkei to the broad Topix index in order to not own too much stock in individual companies. Again, the move looks like stimulus has been removed via QE purchases, however, Kuroda emphasised this was to provide longevity to the programme as the BoJ balance sheet continues to expand. Finally, in an attempt to double down on the Bank’s commitment to providing additional stimulus, the Bank outlined new lending incentives and a plan to adjust their three-tier reserve system if it cut rates further into negative territory. This announcement aimed to dispel rumours that the central bank has run out of room to cut rates further into negative territory if needed. On the whole, the adjustments by the BoJ proved dovish even though in effect the level of short-term stimulus has been reduced. This has done little to weigh on the currency though, which has weakened nearly 5% year-to-date due to widening yield spreads. A weaker US dollar is seemingly facilitating the yen’s surge this morning.



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