News & analysis


Sterling sits at the bottom of the G10 currency board today as its losses against the dollar sit at 0.16% at the time of writing. The pound is feeling the pinch of the bounceback in the greenback with GBPUSD now trading at levels last seen at Thursday’s close, where the dollar surged on the back of strong data prints prior to the disappointing labour market data on Friday. This week’s data docket is quite light for the pound, with just April’s GDP data on Friday standing out. However, with the GDP data being so lagged, it is unlikely to have too much of a market moving impact. Instead, the GDP data will provide a good barometer as to how real-time data maps over into harder GDP data once the economy has reopened, with the April reading encompassing a few weeks of economic activity after the April 12th reopening.


The euro continues to trade at the mercy of broader dollar moves this morning as it sits slightly lower on the day. Events in the continent were relatively muted over the weekend, with Germany’s CDU win in the Saxony-Anhalt region over the far-right AfD party being the standout piece of news. The victory for the incumbent party is a welcome boost for Armin Laschet, the CDU-led bloc’s candidate for September’s election after Merkel steps down. This week, the calendar includes soft data such as the ZEW sentiment indices before the European Central Bank announces its latest policy decision on Thursday. Consensus has now shifted to the ECB running significantly higher PEPP purchases for longer after key commentary from ECB President Lagarde and policymaker Schnabel. With the consensus shifting well in advance, the decision itself is unlikely to be a major market moving event in the short-term, however, the way in which the message is delivered on Thursday will be key for the broader trend in EURUSD over the coming quarter.


After a choppy end to last week’s session following an underwhelming Nonfarm Payrolls report, the US dollar continues to sit front and centre for market participants. Over the weekend, Treasury Secretary Janet Yellen stated Joe Biden should push forward with his $4trn spending plan even if they trigger inflation that persists into next year, saying that slightly higher interest rates would be good for society and the Fed. This has helped nudge US yields slightly higher in the early parts of today’s European session, giving the dollar a mild boost to the start of the week after it sold off across the board Friday afternoon. This week, the Federal Reserve enters a media blackout before next week’s FOMC decision, meaning the emphasis is now on markets to read the economic data and position ahead of next week’s decision. This will be made slightly more difficult as key data points are released this week, namely JOLTS job openings and US CPI inflation data. Both indices are key for determining inflation expectations, especially CPI as it is expected to rise further to 4.7% in May due to a mixture of near-term price pressures and transitory base effects. Meanwhile, despite the US economy failing to add as many jobs as economists expected, job openings continue to sit at elevated levels, highlighting the mismatch between labour demand and supply – a key indicator of wage pressures that filter into higher inflation.


The Canadian dollar went into the weekend bruised from the last few trading days of the week. Sitting near multi-year highs, the loonie was knocked on Thursday by the surge in the broad dollar after strong US economic data, before a slip in the US Nonfarm Payrolls data superseded the lacklustre Canadian jobs data for May, resulting in the USDCAD pair retracing some of Thursday’s rise. This week, the focus for CAD traders will remain on the broad US dollar, especially with key inflation data due out in the US, while oil markets will garner some attention with WTI trading just shy on $70 per barrel. The rise in commodity prices are likely to be factored into the Bank of Canada’s latest policy decision on Wednesday, however, they are unlikely to be decisive enough to force the BoC to tighten policy again at this week’s meeting. This is especially the case after Q1’s data disappointed expectations while economic activity for much of Q2 thus far remains constrained by tight lockdown conditions. For this reason, we don’t expect the BoC meeting to hold many fireworks, especially as it includes no fresh economic projections or press conference from Governor Macklem.



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