News & analysis


Yesterday’s month-end flows saw the dollar broadly sell off against G10 currencies, despite US and UK investors being away from their desks due to extended weekends. This sell-off nudged the pound higher and with today’s continuation of the dollar decline, GBPUSD now sits at a three-year high. Over the weekend, Bank of England Deputy David Ramsden spoke with the Guardian about the central bank’s cautiousness over the housing market and how sustained price growth could further fuel domestic inflation. The average UK house price rose 10.2% in the year to March, the highest annual growth since August 2007, but figures released this morning by Nationwide show an even faster pick-up in house prices in May as they grew 10.9% YoY. The average price of a UK home is now estimated at £242,832. The current rise in house prices shouldn’t concern the BoE as it seems to be largely a byproduct of the stamp duty cut, however, should it extend beyond June when the tax break expires, policymakers may be forced into earlier tightening than otherwise anticipated. This morning’s GBP price action may reflect the recent housing data, but largely sentiment around the pound remains robust ahead of the expected June 21st full reopening. In the meantime, markets will be keeping a close eye on the government’s assessment on the viability of the next step being taken amidst a backdrop of rising hospitalisations. Today, little data is due beyond the final reading of the May manufacturing PMI at 09:30 BST, which is expected to show no change from the flash reading of 66.1, meanwhile, BoE Governor Andrew Bailey is set to speak on “Building a Finance System Fit for a Clean, Resilient and Just Future” at 16:00 BST.


While yesterday’s newsflow and price action was nothing to write home about for the euro with UK and US markets closed, the latter part of the trading session saw EURUSD gain on the back of a USD sell-off. Sentiment in the eurozone has not deteriorated yet, with Chancellor Angela Merkel stating yesterday that the mandatory restrictions in hard-hit German areas in April “can run out now” as opposed to their expiry at the end of June. Meanwhile, the Guardian reported the EU plans to lift all quarantine requirements from July 1 for those who are fully vaccinated, which should boost summer tourism especially for the hardest-hit southern European countries. Economic data from the eurozone did little to move the needle for the euro, as inflation from Germany, Spain and Italy came in just above expectations and the European Central Bank has echoed the Fed’s stance on inflation being transitory, hence it doesn’t plan to act on any overshoots in inflation in the near-term. Today’s inflation print at 10:00 BST for the eurozone as a whole should therefore also be of little importance to FX markets, although it is set to print above expectations with the consensus foreseeing a 1.9% YoY increase vs the 1.6% consensus. Beyond the CPI inflation data, Italy’s Q1 GDP may induce additional euro volatility at 10:00 BST if the reading deviates significantly from the expectations of -1.4% YoY and -0.4% MoM.


US markets return after a long weekend and wake up to a weaker dollar compared to Friday’s close, despite the majority of yesterday’s moves in FX markets being flat. The broader USD sell-off was initiated before the month-end fix as traders positioned themselves and was maintained overnight and extended onto this morning. Markets remain focused on the US dollar for the remainder of the week ahead of Friday’s pivotal jobs report as the report will shed light on how quickly the labour market is recovering and if the recent supply bottlenecks fueling the inflation overshoots shows any signs of stabilising. The answers to those questions are crucial for the Federal Reserve’s June meeting, where the central bank may throw more light on the timeline of their QE programme. In the background, traders remain focused on any headlines around President Joe Biden’s $6trn budget proposal. For today, investors keep an eye on Markit US manufacturing PMI data at 14:45 BST, although it is unlikely to stir much volatility as it concerns a final reading.


Loonie price action remains muted despite the month-end flows out of the US dollar yesterday. The Canadian dollar rose just 0.06% over the course of the day as it continues to trade in an exceptionally tight range close to the recently printed six-year high. This morning, with a backdrop of broad US dollar weakness, the loonie continues to trade on the front foot as it sits 0.16% higher with the rally in WTI likely helping affairs. Crude currently trades at $67.80, some 2.2% higher on the day, ahead of today’s OPEC+ conference where cartel members are expected to go ahead with rolling back 2m in supply cuts. Also today is the release of March’s GDP data from Canada, which is expected to show the economy growing at 1% MoM (6.5% YoY due to base effects). The rebound is largely due to the scaling back of lockdown measures before they were reimposed again in May, while strong export growth and positive housing market developments also buoyed growth. The reading is likely to place Canada’s economy close to end-2019 levels just as provinces begin to reopen their services sector at a slow rate. A stronger than expected GDP print could further embolden claims that Canada’s economy is going to experience a robust recovery, even more so if the strong data continues into next month’s April print where the BoC expected growth to be flat in Q2. Today’s GDP print could provide the loonie with a slight tailwind, pushing it closer to its 6-year high which sits just 0.19% away.


The Australian dollar joins other commodity currencies in the grind higher against the US dollar today despite the decision of the Reserve Bank of Australia to maintain a highly accommodative policy stance with no change in its forward guidance. The Reserve Bank reiterated its commitment to not hiking rates “until 2024 at the earliest” while any material policy change to its yield curve control programme was delayed until July’s meeting. The assessment by the RBA comes on the back of strong economic data but didn’t embolden the RBA to bring forward their assessment of the labour market recovery and wage pressures until closer to their assessment of a rate hike.



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