News & analysis


Sterling remained one of the worst performers against the US dollar in yesterday’s session as headlines around a possible delay in lifting Covid-19 restrictions and bubbling trade tensions between London and Brussels weighed on the currency. GBPUSD still traded up in the latter part of yesterday’s trading session, however, this can mostly be attributed to broader USD weakness as opposed to sterling strength. The Times suggested in an article this morning that Britain’s roadmap for easing measures could be delayed by two weeks as this would enable all over-50s to be fully vaccinated and leave sufficient time for jabs to take effect before restrictions are lifted. The article came after the briefing from Chief medical officer Chris Witty and Chief scientific adviser Patrick Vallance who described the latest data as fairly grim. On the trade front, Brussels is preparing to make concessions over Northern Ireland as it points to the UK’s repeated failure to live up to its obligations. A vice-president of the European Commission has warned that Brussels will start a trade war with Britain if Boris Johnson overrides the Brexit treaty so that Northern Irish shops can keep selling British sausages. The GBP underperformance on the back of the headlines was still visible in the Asian session, with GBPUSD falling by 0.24% since midnight while EURUSD shaved off a more modest 0.12%. Investors turn to the Bank of England’s Andy Haldane who is set to speak on inequality at Glasgow University at 14:00 BST while the rest of the economic calendar is virtually blank for the UK today.


Yesterday’s session for the euro consisted mostly of broader US dollar moves while volatility remains low ahead of Thursday’s European Central Bank meeting. This morning’s industrial production from Germany, which fell by 1.0% vs the expected increase of 0.4% MoM failed to undermine the currency as EURUSD remained flat around the release. The ZEW sentiment indicator from Germany will be released at 10:00 BST and is set to show a significant increase after encouraging prints in May’s Purchasing Managers’ Index figures and Ifo survey data. The expectations index is set to print at 86.0 vs the prior reading of 84.4 while the current situation index is expected to have increased from -40.1 up to -28.0. A good print may encourage EURUSD to attempt a move towards yesterday’s highs, but the overall rally should be limited as markets are already pricing in a rise in the ZEW data following the other strong data releases.


After failing to hold onto ground made early in yesterday’s session, the broad dollar starts today’s European trading day on the front foot again. There was no major catalyst behind yesterday’s dollar reversal, but the greenback slumped as US investors entered the fray with the DXY index closing 0.22% lower. The DXY index has been toying with the 90.00 handle for the past 4 trading sessions now as the data calendar remains light in the G10 space. However, volatility may begin to creep back into the market’s vision with key US data points, including April’s JOLTS job openings data today at 15:00 BST. The spread between job openings and filings has been a key area for US economists as the historically wide gap continues to point to increased wage growth and inflationary pressures. Such concerns may rear their head again today prior to Thursday’s CPI release and next week’s FOMC meeting. The back-end of the US yield curve will be in focus for FX markets in this regard.


The Canadian dollar was thrown around by the broad US dollar in yesterday’s session as economic events remained light north of the border. The only economic release of note was the Bloomberg Nanos Confidence measure, which has continually grinded higher as provinces take minor steps to reopening their local economies. With little scheduled on the economic calendar today beyond April’s merchandise trade data at 13:30 BST, and with the Bank of Canada set to release their latest policy decision tomorrow, today may be a muted day for the loonie. Price action is likely to be largely determined by broad US dollar moves and positioning ahead of tomorrow’s meeting.


Asian FX excluding Japan traded in a tight range this morning with little data released and a stern focus on Chinese and US inflation data due out tomorrow and Thursday respectively. Within this space, currencies such as CNY and HKD have benefited from a softer dollar overnight, however, things aren’t as dandy for the Japanese yen. JPY has been the worst-performing G10 currency against the dollar in 2021, registering losses close to 6% year-to-date. The yen has struggled with deflation and subsequent Covid-19 outbreaks at a time when most other DM central banks are pressured to normalise policy earlier amid a strong reflationary backdrop. Widening yield spreads and growth differentials continue to pressure the yen, which stands out not only in the G10 space but also within the APAC group.



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