News & analysis


After two days of consecutive declines, sterling finally rebounded despite a broadly strong dollar remaining a theme in G10 FX. Throughout the day, sentiment around the pound remained strong, despite EU leaders meeting to determine the fate of AstraZeneca exports. In the build-up, tensions between the EU and UK had eased somewhat, but the news that the EU may impose export controls did little to derail the pound. Angela Merkel, a key advocate of not freezing exports of the vaccine to the UK, stated “we’ve agreed with the commission that if companies don’t fulfil their contracts, export restrictions will of course be more likely than when companies do fulfil their contracts with the EU”. The suggestion that vaccine exports would only be restricted in the event of limited production and distribution within the EU limited the impact the news had on sterling, which continues to grind higher this morning. Data this morning has helped the pound’s retracement, with retail sales growing 2.1% MoM in February. The data shows the UK economy is recovering somewhat before lockdown restrictions are eased, with non-food components contributing the most to the positive data print after rising 4.1% MoM. Today, with retail sales data released already, the data calendar for the pound purely consists of Bank of England speakers. MPC member Michael Saunders is set to speak at a webinar about supply and demand during and after the pandemic at 12:00 GMT, while Silvana Tenreyro, who is an advocate of negative rates during the early part of the recovery, is set to speak at 16:45 GMT.


The euro reached a four-month low against the dollar in yesterday’s trading session before risk sentiment improved and reversed price action into this morning. A speech by European Central Bank’s Isabel Schnabel caught markets’ eyes as she stated the central bank will pay close attention to the drivers behind changes in financing conditions and the speed of any shifts, and, arguably more importantly, it won’t always wait for scheduled policy meetings if it needs to react with apt policy measures. Schnabel’s message means markets will prepare for action as the near-term outlook remains dismal with Covid-19 inoculations still progressing at slow speeds while daily case counts are surging again. If the ECB chooses to act, it will most likely be by making use of the flexibility of the €1.85trn Pandemic Emergency Purchase Programme (PEPP). The comments come after the ECB boosted its bond-buying in the PEPP envelope after its pledge to fight the rise in yields, signalling a continued dovish message from the ECB. Meanwhile, the ECB’s Luis de Guindos commented on the inflation outlook and stated any increases will be because of transitory and technical factors, the euro area economy could be in for a strong rebound in the second half of the year if a large proportion of the population is vaccinated in the summer. For today, focus turns to German IFO survey figures and Italian sentiment gauges at 09:00 GMT, although the euro is unlikely to take many cues from them as the surveys were conducted prior to this week’s sentiment deterioration in the eurozone


After spending most of yesterday’s session trading lower against G10 peers, the dollar found another wave of support as positive initial jobless claims data printed in the afternoon with the positive sentiment compounded by rising US yields after a rocky 7-year auction. At the beginning of yesterday’s session, it was a case of “no news is good news” for G10 FX markets. The lack of fresh downside risks materialising in the news cycle gave markets a breather, with the dollar unwinding some haven flows from previous days. Price action was still tentative across some pairs, however. The stronger printing of initial jobless claims data at 12:30 GMT proved sufficient in giving the dollar another wave of strength as markets were reminded of the stronger recovery underway in the US. New claims fell to 684,000, down from last week’s upwardly revised 781,000, to hit the lowest reading since the pandemic took effect. The print outstripped expectations by nearly 50,000 and kickstarted the dollar’s rebound. The pressure on G10 FX was already building after the claims data and was compounded when a $62bn 7-year auction saw demand conditions dry up, resulting in the fourth worst bid-to-cover ratio in the 7-years history. This resulted in the 7-year yield jumping from 1.275% to 1.3% post-auction, which put pressure on the back-end of the curve to rise with it. The corresponding steepening of the yield curve gave the dollar another push higher and resulted in the DXY index closing 0.27% higher. Yields settled throughout the Asian session this morning, but news that President Biden would double his vaccination target to 200m doses by the end of April placed further reflationary pressure on the US back-end. While the 10-year rises to test 1.65%, it isn’t translating into broad USD appreciation as the US vaccine news is helping to lift risk sentiment across the board. Today, February’s PCE inflation data is due at 12:30 GMT and is likely to be the last inflation reading for some time before transitory factors induce a lot of noise into the data. Headline inflation is expected to rise from 1.5% to 1.6%.


After enjoying the stabilisation in oil markets, the loonie slid with crude yesterday as the dollar firmed and placed pressure on the tentative risk environment. Rising US treasury yields and a slide in crude oil did little to offset the positive returns in US equity markets, which tends to be highly correlated with CAD price action. This morning, however, news in the US of faster vaccine distribution has helped the overall risk environment. This is visible in all markets stretching from equity to commodity and is visible in the Canadian dollar as it sits nearly a third of a percentage point higher this morning. Domestically, yesterday’s economic headlines focused on Chrystia Freeland’s announcement of C$7.2bn in new Covid-related funding for Canadian provinces, cities and territories. C$4bn is earmarked for immediate healthcare needs, C$1bn for vaccine rollout and reinforcement, while C$2.2bn will flow through the Gas Tax Fund for municipalities and First Nation Communities. The additional spending pledge comes ahead of the Federal budget, which is pencilled for April 19th. For today, the data calendar is completely empty, placing the loonie at the mercy of broad market dynamics.


The Australian dollar’s losses against USD were mild compared to other G10 currencies yesterday while gains this morning see the Aussie dollar sit at the top of the G10 currency board with NZD. This is natural given the improvement in risk appetite and AUD’s high-beta profile. This morning, a research note from Westpac expects the RBA to extend its QE programme by A$100bn rather than A$50bn in October. Meanwhile, in China, the PBOC delivered a statement after its quarterly meeting yesterday stating the bank would maintain adequate and flexible monetary policy throughout the recovery phase as well as apt liquidity. The PBOC sees Chinese growth in 2021-2025 climbing to 5-5.7% while the World Bank also upgraded China’s growth forecast. China is set to lead the recovery in Eastern Asia at least this year with growth expected to reach 8.1% according to the World Bank. The commitment by the PBOC to promote a strong economic growth path has been reflected in the yuan this morning as it climbs 0.1% in both onshore and offshore markets. The gains show signs that recent losses may start to be reversed as the global economy and risk environment recovers.



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