News & analysis


After posting mild gains over the course of the week, sterling looks to retrace its steps completely this morning as it sits 0.33% down against the dollar. There doesn’t seem to be any idiosyncratic driver behind sterling’s excessive losses, despite a broad bounce in the dollar, however, a break in key technicals in EURGBP may be behind sterling’s larger losses in the G10 space. We don’t anticipate sterling’s losses to continue as the economy reopens on a broader scale. Instead, sterling’s gains will await a trigger from incoming data, which should provide a gauge of how robust the recovery is going to be under the latest loosening of lockdown conditions. This has already been partly seen in yesterday’s job postings data, which saw the number of job postings on April 9th reach February 2020’s average level. Today, the data calendar is light for the pound, however, with just Bank of England members  Cunliffe and Woods speaking on regulatory technology at 10:00 BST.


The euro continued to ride high throughout most of yesterday’s session on a weaker US dollar and vaccine optimism despite optimism in the currency not necessarily reflecting headlines or current economic conditions. A minor bounceback in the dollar in the evening part of yesterday’s session exposed this, ultimately leading to EURUSD posting minor losses over the course of the day. The EU recovery fund is still subject to downside risks as an impasse at the German constitutional court risks further delays while the deadline for the nations submitting their spending plans to the EU nears. On the good side, vaccinations have picked up speed somewhat over the past weeks, which is promising for the further roll-out this quarter although a lack of clarity around the Johnson & Johnson shot remains. The EU Commission has decided to not renew vaccination contracts next year with AstraZeneca and Johnson & Johnson, but this should have a limited effect on the euro area recovery as the EU’s contracts with other suppliers next year should be sufficient given the reduced urgency. Today’s focus will be on the euro area finance ministers meeting who will be discussing the progress on the bloc’s recovery fund. Any headlines leading from it could spark some euro volatility on the last trading day of the week.


The dollar is set to close out another week with broad losses as its upside is losing steam despite good data points, indicating that US inflation and growth narratives are already priced in by markets, although this morning the dollar index managed to resist further depreciation. US Treasury yields remained well-behaved overnight with the US jobless claims not doing much for either the dollar or fixed income markets despite the figure printing at its lowest level since the start of the pandemic. Jobless claims fell to 576K last week from 769K a week earlier, higher than pre-pandemic levels of around 220K but still the lowest figure since March 2020. The decline in jobless claims will likely extend as the economic recovery progresses and vaccination rates support the further easing of restriction, powering the US outperformance narrative for now before vaccinations and progress on the fiscal front pick up in the euro area. The positive data was also outlined in March’s retail sales report, which showed a marked rebound from February’s -2.5% reading as it climbed to 9.8% MoM while the core reading climbed from -2.5% to 8.4%. The data has been volatile, however, as stimulus checks influenced both the January and March readings, suggesting aggressive growth of this nature won’t be sustainable.  For today, all eyes will be on the University of Michigan sentiment reading at 15:00 GMT. As earlier headlines around the release of the Treasury FX report being on Thursday proved mistaken, investors will keep an eye out on the FX report in the coming days as well.


After touching highs not seen since March 22nd in yesterday’s session, the loonie quickly reversed course to post a loss on the day as the dollar bounced back in the afternoon. With the Canadian currency sitting near multi-year highs at a time when domestic risks to the recovery remain elevated, large retracements are likely given a deterioration in global conditions or risk appetite. This morning, however, the loonie is on track to turn around yesterday’s declines as it sits 0.2% higher on the day. There is little scheduled for the loonie in terms of top-tier data today, with just housing starts for March due at 13:15 BST and wholesale trade data for February at 13:30 BST. Instead, investors will keep an eye on broad risk barometers in markets, while positioning themselves for next week’s budget announcement and Bank of Canada meeting.


The APAC session closed out on a soft footing today as underwhelming Chinese GDP data compounded a broad risk-off vibe seen across the G10. The yuan, which is a good proxy for overall sentiment in the region, is trading flat across both onshore and offshore markets after initially opening the session 0.13% lower. The initial drop was due to the weak Q1 GDP release, which was flattered by base effects. The year-on-year figure printed at 18.3% YoY, largely due to it being compared with Q1 2020 when China’s economy was battling the outbreak of the pandemic. For this reason, the focus shifted over to quarterly growth rates, which saw a substantial slowdown from 3.2% QoQ in Q4 to just 0.6% in Q1. The breakdown in the GDP data initially shows growth in industry and construction softened last quarter from 2.3% QoQ to 1.3%, while service sector growth reversed from 3.9% to -2.3%. The yuan’s early losses may not seem as substantial given the sizable downturn in the data, however, China’s GDP reading must be read in the context of the economy already rebounding to above pre-virus levels and support measures being tapered. In this light, a more stable growth trajectory is likely to persist from hereon in, which is arguably the rationale for the CNY recovery throughout the session.



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