News & Analysis


Sterling starts the week in the green against both dollar and euro this morning as traders await news from the UK’s last meeting with EU negotiators, which takes place just days before the cut-off date for an extension application. The “intensified” talks will see the EU’s chief negotiator Michel Barnier meet with David Frost, his UK counterpart, in Brussels for a face-to-face meeting. News of further fiscal spending was announced over the weekend, with Prime Minister Johnson pledging to spend big on hospitals, schools and roads in order to rejuvenate the UK economy after it contracted 20.4% in April. The details of the spending plan are expected to be announced on Tuesday. Outside of fiscal stimulus and Brexit talks, the pound faces the final PMI readings for June and also a key speech from the Bank of England’s chief economist Andy Haldane on Tuesday. Haldane dramatically voted against the Bank’s increased stimulus measures in its last meeting, leaving many spectators bemused with the monetary policy committee’s outlook on the impact coronavirus has had on the UK economy. The speech is scheduled at 11:00BST and focuses on the pandemic’s economic effects, the implications for monetary policy and the outlook for the rest of the year. Since the pandemic and the changing of the guard from Carney to Bailey, the central bank’s communications strategy has come under a lot of scrutiny, and should Haldane’s speech go against the Bank’s recent communique then sterling is likely to see another spike in volatility.


The euro is enjoying a quiet open to the week, with German and Spanish inflation figures the only major releases of note today.  Spanish consumer prices contracted by 0.3% year on year in June, a slightly slower rate of contraction than expected. German figures will be released throughout the morning, and equivalent eurozone and French inflation numbers will be out tomorrow.  France saw a number of local elections over the weekend, with Emmanuel Macron’s en Marche party losing a number of seats to candidates from a wide range of parties from across the political spectrum. Later in the week, updated survey data will be released, with manufacturing purchasing managers’ indices out on Wednesday and services on Friday.


The dollar had an indecisive week last week and has opened today very much on the back foot, with the entire G10 group of currencies up on the day. Reports of coronavirus vaccine progress may also be bouying risk appetite in general, and therefore reducing demand for the greenback as a safe haven. The New York Times published a bombshell article containing allegations that Russia offered a bounty to Taliban fighters for killing western soldiers, which US President Donald Trump denied he had been briefed about. US political data website currently shows Trump’s approval rating at the lowest since early 2019, after a sharp dip over the previous three months.  Since Friday morning, a number of states including Texas, Florida, Arkansas and others have halted or reversed re-opening plans due to rising coronavirus case counts. The United States recorded a daily case count increase of 44,000 on Friday, the largest daily increases in cases since the pandemic began, and yesterday Health Secretary Alex Azar warned the “window is closing” to stop the spread of the virus. This week’s calendar will see the latest meeting minutes from the Federal Open Markets Committee released on Wednesday, and monthly non-farm payrolls released on Friday.


After a bright start on Monday, the loonie closed the week out 0.3% lower against the dollar last week. The loonie was pushed lower by a swathe of dollar buying in the back-end of the week, coupled with rising US oil inventories and negative outlooks from the Bank of Canada. This morning, risk appetite has tentatively picked up in markets and the Canadian dollar is a quarter of a percentage point higher. The main focus for USDCAD investors this week will be the reading of April’s GDP due to be released at 13:30BST on Tuesday. This data point is likely to display the depth of the Canadian economy’s contraction. The average economic expectation has ticked up somewhat from last week, with economists now expecting an 11.8% MoM contraction, resulting in a 16.9% YoY slump. With the loonie still trading in the middle of its new range, a directional break-out may be forthcoming given the size of the surprise in the data either side of the median forecast.



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