News & analysis


Concerns over the AstraZeneca vaccine in young adults were realised yesterday when the Medicine and Healthcare products Regulatory Agency stated the causal link between the vaccine and blood clots in the brain was getting stronger as more data came in. This resulted in the UK following the lead of many European nations and Canada in offering an alternative to the AstraZeneca vaccine for young adults, although in the UK this is for under 30’s whereas the threshold is much higher in other nations. The announcement weighed on the pound further, with GBPUSD dropping 0.62% on the day to round off losses that amount to 1.2% in the first two trading days of this short week in Europe. Meanwhile, sterling’s underperformance resulted in GBPEUR dropping the most in 2021 on Tuesday, with further downside pressure added in yesterday’s session. With risk appetite supported across the board today and the dollar sitting firmly on the back foot, sterling has stabilised somewhat against both USD and EUR this morning. However, fresh waves of selling pressure could be witnessed in the coming days as the pound starts to lose some of its shine with vaccinations slowing.


Where the British pound took yesterday’s AstraZeneca news hard, the euro reacted more mildly and traded mixed across the board yesterday. Italy joined Germany and France in recommending the Astra shot only for people over 60, which is not only different from the UK’s approach but also not unified among the whole bloc. EU health ministers stated they will continue talks on the issue. Despite the Astra news, the euro briefly touched fresh two-week highs against the US dollar yesterday before gains stabilised overnight. For today, markets await the European Central Bank meeting minutes for details on the purchase pace of the Pandemic Emergency Purchase Programme (PEPP) and the ECB’s tolerance towards higher bond yields. The ECB communicated in the March meeting it will conduct bond-buying through PEPP at a “significantly higher pace” over Q2 compared to the start of the year, and realised this by ramping up weekly purchases to three-month highs in the weeks after the decision. Last week saw an exception to the rule as the Easter holidays made the ECB halve the pace of their PEPP purchases, but the minutes will be further scrutinised for details on how long this front-loading will occur and if it will be extended beyond the second quarter. This will depend on the ECB’s threshold for higher bond yields, but in the months after the Fed’s tapering timeline will likely also be of interest to the ECB.


Yesterday’s trading session saw the dollar index mildly rising over the day, although this was short-lived as this morning’s price action included a softer dollar across the board again. Risk appetite got a boost with S&P equity futures rallying to a record high while 10y Treasury yields drifted lower. Yesterday’s FOMC minutes from the March meeting reiterated an improved economic outlook, with the Fed upgrading its economic forecast to reflect a faster-than-anticipated reopening pace and larger fiscal response following President Biden’s 1.9trn fiscal package and the ongoing infrastructure proposal. The FOMC noted that the public health situation had improved and growth had picked up but also observed that the services sector remained weak and that the pandemic disproportionately affected minority groups. Regarding the inflation outlook, most participants remained confident that the risks are balanced although risks of upside pressures have increased since the December forecasts. In terms of policy normalisation, the minutes provided little new information and reiterated it will “likely be some time” before the economy recovers enough for it to begin tapering. Overall, the FOMC remained as dovish as in the March statement and market pricing was little changed after the release of the minutes.


The Canadian dollar hasn’t been an exception to how the broad dollar has traded so far this week, despite the loonie being a more defensive currency against the US dollar so far this year. Over the last two trading days, the loonie has fallen 0.68% against the greenback despite strong data being released. Yesterday saw the Ivey PMI jump to a decade high of 72.9 while a second straight trade surplus was recorded in February on the back of lower imports. While broad USD strength was a backdrop to the loonie’s losses thus far this week, a deteriorating Covid-19 backdrop is likely contributing. Yesterday, Ontario premier Doug Ford announced a state of emergency just shortly after implementing a 4-week lockdown in Canada’s largest province. The province reported 3,215 new cases on Wednesday and is marching closer to the peak level recorded during the worst wave in January. Premier Ford announced that the rate of new cases and the strain on the healthcare system is more severe than their worst-case scenario as he pleaded with citizens to stay at home unless absolutely necessary. As part of the state of emergency measures, most retail stores will be required to close, with even big-box retailers such as Walmart and Costco forced to only sell essential products such as food and cleaning products. The announcement comes at a time when growth outlooks are being hit across borders too, with Europe also struggling with rising cases and vaccine roll-out hitting snags. With little data released today, the focus will remain on Covid-19 cases in Canada and whether any other provinces follow Ontario’s lead – Quebec has already done so but to a lesser extent. Meanwhile, headlines of growth projections being revised may cause the loonie some troubles, although it is likely too premature for this to happen just yet.



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