Sterling continues to be subject to broader market moves as it awaits fresh direction from economic data that highlights how robust the economic recovery is now lockdown measures have been eased. The pound has been floating progressively lower against the dollar over the past four trading sessions and it starts today on track to make that five, however, fresh stimulus may come from the release of the Bank of England’s CHAPS data at 09:30 BST. The aggregate credit and debit card data is the timeliest measure of how consumption is reacting to the government’s easing of lockdown measures, with today’s release set to cover the first week’s worth of data since the third stage of easing on May 17th. Analysts will be looking towards a recovery in social spending, much like that in delayable spending after the April 12th reopening of non-essential stores, now hospitality sectors aren’t as constrained to capacity and outdoor only limitations. A robust rebound in social spending should lift aggregate spending above pre-pandemic averages, showing a catch-up effect in consumption. The strength of the initial rebound should provide GBP with some near-term support, however, a more robust trend of elevated consumption is likely to warrant another leg higher in the pound.
The euro lost ground against the US dollar yesterday amid a strengthening dollar but remained buoyant against sterling as sentiment around the eurozone remains strong. France joined Germany in tightening restrictions for travellers entering from the UK due to the prevalence of the more transmissible Indian variant, but this hasn’t spilt over and deteriorated sentiment domestically. June’s German GfK consumer confidence came in well below expectations this morning, printing at -7.0 vs the consensus print of -5.2, but the euro took no cues from this as the currency continues to ride high on vaccine optimism and a bright recovery outlook. Several European Central Bank speakers this week have downplayed chances of the ECB slowing down its Pandemic Emergency Purchase Programme, but these were members on the dovish side of the spectrum. Today’s speakers, Isabel Schnabel who is a centrist and Jens Weidmann, who’s taken on more hawkish stances in the past, may take a different view today. Any comments from them which would deviate to the hawkish side from what has been stated by colleagues earlier this week may put additional upward pressure on the euro, however if they choose to keep their cards close to their chest, today’s euro price action should be fairly muted given the light economic data calendar.
Yesterday marked the dollar’s largest intraday rally in a week, with the DXY index ripping over half a percentage point higher fueled by Federal Reserve commentary. Earlier Fed comments from Mary Daly and Richard Clarida which had a hawkish twist to them failed to excite currency markets, however, with Fed’s Randal Quarles joining his colleagues on Wednesday, the US dollar finally gave in and advanced for the first time in two days. Quarles stated that it will be important for the central bank to begin discussing in coming months plans to reduce its massive bond purchases if the economy continues to power ahead coming out of the pandemic. This morning, the dollar is slightly lower across the G10 currency board, with the DXY 0.07% lower, while EURUSD and GBPUSD continued to trade just below key levels. Major currency pairs continue to trade in narrow ranges ahead of month-end positioning that is likely to take place in the coming two days given Monday’s bank holiday in the US and UK. For today, markets will focus on US jobless claims and durable goods orders at 13:30 BST. Additionally, a series of second readings will come in at 13:30 BST, including Q1 GDP and core PCE figures.
The Canadian dollar got tied up in yesterday’s broad US dollar strength as commentary by FOMC Vice Chairman for Supervision Randal Quarles joined the call by the hawks at the Federal Reserve to start discussions on tapering QE. The comments emboldened financial markets as the initial signs of a change in direction from the FOMC are starting to become visible, albeit data-dependent, and have squeezed the loonie’s front end rate differential with its US counterpart. This weighed on the Canadian currency, forcing it to post a 0.47% loss on the day where there was little economic data or events in Canada to stem the losses. Today, the loonie is joining other high beta currencies such as NZD in taking a chunk out of the dollar again as it trades 0.15% higher this morning. The only notable data point out of Canada today is the CFIB business barometer for May, which declined in April from 68.2 to 63.4 as lockdown conditions tightened in major provinces. With conditions stabilising and vaccinations picking up pace, it is likely that the business barometer prints relatively flat compared to April’s reading.
The Australian dollar looks to be barely affected by fresh lockdown measures implemented in the state of Victoria this morning as it joins other high beta currencies in the G10 in posting marginal gains against the US dollar. After a minor cluster outbreak, authorities in Australia’s second-most populous state, which includes the city of Melbourne, have embarked on a sharp 7-day lockdown to stem the outbreak any further. While the number of people who have tested positive remains at just a handful, the number of primary and secondary contacts sits in the tens of thousands. This highlights the risk of Australia’s effective eradication programme without vaccines being widely accessible at present. With the lockdown only temporary and isolated to just 7m citizens, its impact on financial markets has been extremely limited, although any signs of further contagion or a more prolonged lockdown is likely to cause traders to reprice AUD.