News & Analysis


After a string of positive data prints last week and a renewed risk-on backdrop in markets this morning, the pound is trading close to its recent highs against the dollar. Against the euro, sterling isn’t holding up so well, however. After a sustained retracement following the ECB induced decline in GBPEUR back on February 2nd, the cross has stalled this morning as the euro outstrips gains in the pound due to its closer economic links to the Russia-Ukraine crisis. Amid a relatively light data day across all markets today due to North American federal holidays, flash PMIs out of European nations will be focused on heavily. The February flash PMIs out of the UK, at 09:30 GMT, will be examined to see how quickly economic momentum picked up now the Omicron backdrop has dissipated. The data will be subject to increased attention as March’s Bank of England meeting rapidly approaches. The recent string of positive data developments have compounded expectations of a 25bps hike at a minimum from the BoE and has provided the pound with substantial support. Any substantial downturn in today’s data is therefore likely to see outsized losses in GBP relative to usual as hawkish expectations of the BoE will be moderated.


Improved geopolitical relations overnight despite increased shelling in the Donbas region has resulted in a 0.5% rally in EURUSD this morning. With the peace summit expected to occur towards the end of the week and incentives for an invasion to be postponed until after diplomatic avenues have been explored fully, the single currency is likely to remain on the firmer side in the early part of this week. On top of the geopolitical tensions, eurozone PMIs will be in focus with the first two batches already released. France’s flash February PMIs saw a material improvement in both services and manufacturing activity, resulting in the composite reading climbing from 52.7 to 57.4, well above expectations of a 53.0 reading. While the improvement in the services component, from 53.1 to 57.9, won’t come as a shock to many as the improvement in health conditions aided an upswing in services activity, the improvement in the manufacturing measure from 55.5 to 57.6 is somewhat surprising. Within the manufacturing index, strong demand coupled with staffing issues and persisting supply chain disruptions resulted in backlogs of orders rising at the quickest extent since April 2011 in France. With new orders rising and anecdotal evidence of strong employment intentions over February, the manufacturing PMI has helped compound the upswing in services activity and will help solidify expectations of a more hawkish set of ECB projections in March. Unlike France, Germany’s manufacturing measure moderated in February from 59.8 to 58.5, with signs of continued supply chain disruptions still taking a toll. As expected, the services PMI increased from 52.2 to 56.6.


Despite the news cycle predominantly focusing on the intensification of mortar fire at the Ukrainian border over the weekend, news that Presidents Biden and Putin have agreed in principle to France’s proposal of a peace summit has resulted in markets opening this morning with a fresh risk supportive wind behind their sails. While the details of the diplomatic meeting won’t be clarified until Antony Blinken and Sergei Lavrov meet on Thursday, the first signs of a diplomatic solution are reverberating across markets as the incentive to at least prevent an invasion until the end of the week are in play. The news resulted in US and European equity futures both rising, Asian stocks paring gains, the dollar weakening against the whole G10 space, and gold nudging lower. Treasuries won’t trade today because of a US federal holiday.


The Canadian dollar joins the broad G10 risk-on rally this morning but continues to lag the broader move in markets. With Canadian investors joining the US in celebrating a federal holiday today, the lack of action in North American cash equities and fixed income markets may mute the rally in CAD over the course of today’s session. However, unless there is a substantial shift in geopolitical events overnight, the loonie is likely to play catch-up on the broad risk bid against the dollar tomorrow. Over the weekend, Canadian police finally secured the downtown core of the capital city, Ottawa, after a three-week-long occupation by truck drivers protesting the imposition of a cross border vaccination mandate. The protest had quickly turned into one against the government and Prime Minister Trudeau, however, and the level of disruption intensified to a point that the government invoked rarely used emergency powers. Today, the data calendar is empty for Canada and the US, leaving the loonie to trade at the discretion of the broader dollar move.



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