News & analysis

GBP

Sterling is one of the better performers in the G10 FX space this morning as the US dollar continues to climb higher with rising US yields. Sterling, only down 0.05% against the dollar at the time of writing, sits just below other high-beta G10 currencies against the dollar like AUD and NZD, as front-end gilt yields rise faster than their North American counterpart. This is providing the pound with a level of protection against the broadly firmer greenback this morning. Yields in the UK are rising this morning despite comments yesterday by Bank of England policymaker Vlieghe, a known dove within the monetary policy committee. Vlieghe stated that markets shouldn’t expect the central bank to remove stimulus just because of a few quarters of strong growth once the economy reopens. Instead, he stated that the BoE will want the economy to converge back and sit at its medium-term potential before policy is tightened. “Put in another way, we need the labour market to return roughly to the state that it was in immediately before the pandemic”, Vlieghe noted. With nothing remaining on the economic calendar today, after the Lloyds business barometer for March printed much higher at 15 compared to February’s reading of 2, sterling is at the mercy of broader market forces. However, its recent consolidation lower against the dollar may start to turn around as more stages of reopening are met in the coming weeks.

EUR

The euro traded softer across the board yesterday as the current lockdown and vaccine narrative in the eurozone continues to weigh on the currency; the euro weakened against all G10 currencies with the exception of JPY and CHF. The dovish push by the European Central Bank has helped offset some of the impact of the growth negative developments of late, as its message to ramp up bond-buying in the short-term should aid the eurozone recovery. On the other hand, within this reflationary environment, capped eurozone yields may limit the extent to which EURUSD can rise. Yesterday’s Pandemic Emergency Purchase Programme showed weekly purchases rose by another €20bln, indicating that the ECB kept to its word. The front-loading operation will likely continue over the coming months as the EU gradually manoeuvres itself out of its current lockdown situation. When the recovery phase kicks in, the ECB should be cautious when it shifts away from its stimulus, according to outgoing policymaker Vitas Vasiliauskas. The Governing Council member warned yesterday that the ECB cannot allow themselves to make sharp changes to their monetary policy, especially having in mind our historic experience. The current PEPP envelope will be in place until March 2022, but the programme is flexible in terms of how much the central bank will purchase each month. For today, markets turn to euro area consumer and economic confidence indicators from March at 10:00 GMT before the release of the German CPI figures at 13:00 GMT.

USD

The greenback remained elevated against most peers as risk aversion was a prominent factor throughout yesterday’s early trading session. But the greenback got another boost later on as the market mood faded when an acceleration of US vaccine roll-out reinforced expectations of US economic outperformance this year. This morning, the Aussie and Kiwi dollar gained following the turnaround in risk sentiment while they now stand at the top of the G10 currency board, however, against other G10 currencies the dollar remains more dominant this morning. A large driver of the sentiment booster was the comment by President Joe Biden who stated 90% of US adults will be eligible to get a vaccine by April 19, while London trails the rest of the UK with roughly 79% of over-50s now vaccinated. President Biden also reiterated the risks to the outlook as cases are still surging, hospitalisations are up and deaths are multiplying, but his team’s efforts to ramp up vaccines offered a sigh of relief to markets. Today, developments in US equity and fixed income markets will be in focus yet again, with President Biden’s stimulus package expected to be announced tomorrow. The reflationary news of additional fiscal stimulus and faster vaccine roll-out has resulted in the US 10-year yield rising above 1.77%, giving the greenback an additional tailwind.

CAD

The loonie’s losses yesterday weren’t sustained throughout the whole trading session, but ultimately a rise in US yields and greater positivity around the US economic outlook resulted in the loonie posting a 0.18% loss on the day. Yesterday’s main news focused on the developments in the Suez canal, as the Ever Given was refloated and the bottleneck was eased with the ship exiting the canal almost a week after entering. Oil markets weren’t placed under too much pressure with WTI still trading above $60 per barrel, as headlines came in suggesting OPEC+ will maintain their level of production cuts in their April meeting on Thursday. On the vaccine front, Health officials in Canada are suspending the delivery of AstraZeneca Covid-19 vaccines to under-55’s other fears of blot clots in extreme circumstances. The news comes as Canada lags in its vaccination efforts and with 1.5m AstraZeneca vaccines set to be delivered from the US this week. Today, in lieu of any Canadian economic data and central bank speakers, the focus will be on the API crude inventory report and the impact that will have on WTI prices ahead of tomorrow’s more market-moving DoE report and Thursday’s OPEC+ decision. Released at approximately 4:30pm ET, the flash inventory report could hammer home rising stockpiles of crude oil, while reiterating the theme of improving demand conditions as refined product inventories fall. However, this dynamic put substantial pressure on WTI prices this time last week, meaning WTI could dip below $60 per barrel today.

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