News & Analysis


Another light news day looks to be in the offing as the UK gears up for an extended Easter weekend, with sterling largely unmoved overnight. However, with news early this morning from Australia that the RBA has paused its hiking cycle, a decision we see as likely foreshadowing a similar move at Bank of England’s May meeting, it is a good reminder for UK watchers that conditions continue to evolve in the background. It will be in this context that markets get to hear from two BoE speakers later today. First up at 10:15 BST is external MPC member Silvana Tenreyro. A well-established dove on the MPC, the only major surprise she has delivered in recent weeks came in failing to vote for a rate cut at the March meeting, despite indicating in some previous communications that she may have thought this appropriate. Given that her views lie some distance from those of the median MPC voter, then barring a surprise hawkish shift in tone, Tenryro’s comments are unlikely to move markets. A speech later in the day (15:30 BST) by BoE Chief Economist Huw Pill is, however, likely to capture more attention from market participants. As a centrist member of the MPC, his views give a reasonable indication of the committee’s voting intentions for the upcoming meeting, where we see the decision to pause or hike as finely balanced. Considering recent Bank communications, and assuming the economy continues to evolve in line with both bank expectations and our own, we think a pause is more likely, but will be looking to Pill’s comments for further confirmation of this view.


After falling in the overnight session on the OPEC+ news, the single currency spent most of yesterday’s European and North American sessions climbing back to the top of its recent range. Accelerating the bullish trend was signs that the US economy was feeling the pressure of significantly tighter monetary conditions as the ISM manufacturing index fell to a fresh post-pandemic low. Now, with EURUSD threatening to break higher and back towards levels last seen in early February before US data drove terminal pricing of the Fed towards 6%, markets will be eagerly awaiting a bullish catalyst. Unfortunately, there is not much eurozone data today, but a further decline in the eurozone PPI data in February from 15% towards 13.3% would be a welcome development for the ECB. Outside of scheduled economic data, unplanned commentary from ECB members supporting a 50bp hike in May could be enough to convince money markets to price in a greater probability of such an outcome, which in our view would be enough to tip the balance for EURUSD. This comes on the back of comments from ECB’s Robert Holzmann yesterday that a 50bps hike in May is “still on the cards”. Naturally, with Holzmann sitting on the most hawkish side of the ECB’s spectrum, markets have discounted his comments heavily, but further hawkish commentary emanating from Frankfurt would likely add weight to Holzmann’s claim.


The US dollar weakened and Treasury yields slid in yesterday’s session as the ISM manufacturing index stoked fears about economic growth, outweighing prior concerns that the decision by OPEC+ to cut oil production by 1.1m barrels per day would spur inflation higher. The US manufacturing index fell further into contractionary territory with a reading of 46.3, the lowest print since the onset of the pandemic in 2020, and anecdotal evidence within the report didn’t paint a pretty picture either. Firms continued to report that the surge in interest rates and the overall tightening in credit conditions are dealing a huge blow to capital spending, the lifeblood of domestic manufacturing activity. This showed up in the new orders index, which fell 2.7 points to 44.2, and in inventories, which fell 2.6 points to 47.5. With this already being reported before the effects of the recent bank failures are fully felt on lending conditions, markets continued to buy into Fed easing in the second half of the year on a harder landing outcome for the US economy. Naturally, with growth conditions holding up better in the APAC region and in Europe, this resulted in further dollar downside in yesterday’s session.

Today, the emphasis from markets will once again rest on the macroeconomic data, which is starting to come back into the driving seat for markets in the absence of financial stresses. Today, lagged data on US job openings is released in the February JOLTS report at 15:00 BST alongside factory order data for the same month. Should the JOLTS report show an acceleration in the decline in labour demand, downside in the dollar will likely persist.


The rally in CAD looked like it was losing steam on Friday, but thanks to a surprise OPEC production cut over the weekend that brought WTI prices 6.3% higher to the $80 handle, the loonie’s momentum re-accelerated. With a 0.6% daily gain, this marks the sixth consecutive trading day where the loonie has climbed against the greenback—the longest consecutive rally since last March, which saw nine days of consecutive gains. Now, USDCAD is at its lowest level since February 16th, over 6 weeks ago, and more than 3% below its recent peak on March 10th, the day that Silicon Valley Bank collapsed. Aside from the oil news, most of the intraday volatility was driven by PMI data for both Canada and the US, the latter of which we discuss in the USD section. S&P PMI data showed the Canadian manufacturing sector tilted back into contraction territory in March, falling sharply to 48.6 from 52.4 following two months of improvements. Aside from that, the Bank of Canada also released its twin quarterly business and consumer expectations surveys for Q1. While these reports are typically quite informative, they are a bit stale as they predate the blowup of Silicon Valley Bank, which completely shifted the macro backdrop. Nevertheless, the key takeaway of the two reports was that Canadian businesses and consumers still expect inflation to remain sticky and well above target, even in the case of a mild recession, but those expectations have edged down slightly. We still don’t think the Bank of Canada has enough evidence to abandon its conditional pause in favour of another rate hike, but these reports should serve to maintain the Bank’s bias of being more concerned by upside than downside risks to inflation. Today, building permits for February will be the only notable Canadian data released. Economists forecast a rebound to 2%, following a 4% decline in January.

FX Elsewhere

The Aussie dollar joined the Norwegian krone at the top of the G10 currency board yesterday on the back of speculative buying ahead of the Reserve Bank of Australia’s overnight policy decision. While money markets had fully priced in no change in the Cash Rate target, economists surveyed by Bloomberg were more evenly split. We ourselves looked for a further 25bps increase on the back of still strong inflation data, a further tightening in the labour market, and only preliminary signs that tighter monetary policy was starting to weigh on domestic demand. However, the RBA, after opening the door to holding rates back in their March decision, decided to do so today in order to observe the effects of 350bps worth of tightening thus far this cycle. The price of Australian government bonds jumped and the Aussie dollar sold-off in response, but the initial 0.6% drop was minor when measured against yesterday’s 1.5% rally. The RBA’s still hawkish bias in the policy statement was likely the restricting factor for the AUD bears. With inflation still projected to sit at the top of the central bank’s tolerance band by mid-2025 and with the labour market still sitting at an historic level of tightness, the RBA maintained language that it “expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target”. In our view, today’s pause to the hiking cycle is merely temporary, with further tightening likely in May should Q1’s CPI data, released on April 26th, continue to show concerning signs within core components.



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