News & Analysis


With little significant data out of the UK, price action in sterling was dictated by events elsewhere over the course of yesterday’s session, with the pound up around half a percent against the dollar and falling 0.15pp against the euro. The only news of note came from the Competition and Markets Authority, who blocked a proposed acquisition of games developer Activision by Microsoft, a deal worth roughly $75bn. The decision to block the tie-up was slammed by Activision, labelling the UK as “closed for business” in response to the announcement. Whilst not immediately impactful for the pound, the relative attractiveness of UK asset prices that have been depressed by political and economic uncertainty in recent years, is something we have flagged as a potential upside catalyst for the currency. Headlines such as these, however, will not help investor sentiment if this example of regulatory interventionism proves to be the beginning of a trend. Given little else newsworthy is occurring, and today’s data calendar looking sparse, early trading this morning is seeing the pound trade flat, with price action likely to be driven by developments outside of the UK once again.


It was the euro that was the big winner from yesterday’s US developments, with EURUSD rising by sixth tenths over the course of the day. More notable for traders, however, wasn’t the one-day increase but the fact that the currency pair broke its year-to-date high briefly on US financial stability concerns after it had repeatedly tested this resistance level in April. While the single currency struggled to consolidate its gains as traders took profits on the fresh high, it was a stark reminder that convergence in US-Eurozone bond yields is still a prominent driver of EURUSD upside ahead of tomorrow’s pivotal eurozone inflation readings, which could see markets price in a 50bp hike from the ECB next week. Today, however, the economic calendar is set to be light on the euro side, meaning positioning ahead of tomorrow’s inflation and growth data is likely to be a dominant factor for the currency pair today.


The broad dollar traded off US-centric events yesterday. For much of the European session, DXY weakness dominated as traders looked to divest from the greenback following Tuesday’s haven inflows. The exodus from the dollar into nearly anything else was potentially another sign that markets no longer want traditional exposure to the safe haven dollar if financial and economic risks are isolated to just the US. This preference was then put on full display when CNBC cited sources saying the government is unwilling to intervene in the sell-off of First Republic Bank. The news led the bank’s stock price to nosedive, with the 20% circuit breaker triggered shortly after the headlines struck screens. With the stock price in freefall and no safety net in sight, markets began to build in more cuts from the Federal Reserve, which sent the US 2-year plummeting to 3.87%–its lowest level since April 7th. Leading gains against the dollar was the alternate reserve currency, the euro, which during this flash in the pan period of trading broke out of its recent range to print a fresh year-to-date high. Shortly afterwards, however, some of the US specific risks were tapered as Republican House Speaker Kevin McCarthy announced that he was confident the Republican’s spending bill, which would raise the debt ceiling by $1.5tn in exchange for strict spending rules for the Biden administration, would pass the House vote. And it did, with a razor thin margin of 217-215 votes. Although this initially reflated front-end rates, the razor thin margin that the proposed bill gained in the House highlights the precarious position debt ceiling discussions are in, especially as the Republican bill is likely to get voted down in the Senate. Nonetheless, after a rocky US open for stocks, bonds and the dollar, markets soon slipped back to close the day out with very limited adjustments in price.

Today, the same drivers for the dollar are expected to dominate the session, with US regulators weighing the prospect of downgrading their private assessment of First Republic Bank, which could restrict its access to the Fed’s liquidity measures. Meanwhile, the debt spending bill is set to be put in front of the Senate, where its prospects are bleak. Nonetheless, news that a sudden surge in tax receipts took place on Tuesday pushes back the urgency for any such deal as the x-date for the US Treasury is now estimated by Goldman Sachs to be towards the end of July as opposed to early June. In addition, the US economic data calendar comes back online today with the release of initial jobless claims data for the week ending April 22nd and Q1’s advance GDP reading at 13:30 BST. Expectations are for growth to sow from 2.6% QoQ to 1.9%. Not only will headline growth be closely monitored given the markets prior concerns over the sluggish economic momentum heading into March’s banking turmoil, but so will the details of the growth data, especially consumer spending.


The loonie didn’t move much yesterday, weakening by less than a tenth of a percent against the greenback. Not much happened in Canada, with no new major news stories and zero Canadian data releases. The main event was the release of the Bank of Canada’s meeting minutes, which didn’t add much to what we knew from the decision. The main information we got was additional clarity on why the Bank chose to remain on pause, as well as the factors that led an additional hike to be considered. In essence, the Governing Council said that a resilient economy, persistent core inflation, the need to be forward-looking on inflation pressures, and possible difficulty in bringing inflation all the way back to 2% were the main reasons that an additional 25bps was debated. Ultimately, though, they said that the economic outlook had not shifted enough to warrant another hike, but that those factors were worrying enough to say that future hikes are still possible this cycle. The Council also said that timely policy intervention had been sufficient to relieve the stress from deposit runs in the US banking system, and that credit tightening from Canadian banks had been “modest” so far. Today’s calendar is once again void of market-moving Canadian data. The only noteworthy data release will be the SEPH employment report, but it is a lagging, confirmatory indicator that markets don’t usually react to.

FX Elsewhere

In Hungary, the forint spent yesterday’s session more than retracing yesterday’s losses against the euro, with EURHUF falling 1% over the course of the day. Some of this price action may be traders continuing to tweak positioning following the NBH rate decision that saw an initial, if symbolic, move towards policy normalisation. However, domestic concerns also seem to have been a factor, with several news stories dropping over the course of the day. First was an indication that Hungary would continue to restrict grain imports from Ukraine, pointing to a stickier inflation environment . Second was an opinion from the ECB that a government decree that aimed to curb the central bank’s ability to tighten monetary policy was a violation of its independence. Both of these stories hint towards a tighter interest rate environment than would otherwise be expected, perhaps providing encouragement for traders to hold onto long HUF carry trades.



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