News & analysis


Sterling threatened to climb higher against the dollar yesterday as the greenback broadly declined against the G10 currency board. While the broad dollar DXY index touched its lowest point since January, sterling struggled to capitalise on the USD weakness. After gains in excess of 0.4% in the early part of yesterday’s session, GBPUSD ultimately closed 0.04% lower on the day. Comments from Bank of England policymakers this week downplayed inflation fears that have been visible in some financial instruments. Speaking to lawmakers on Monday, BoE Governor Andrew Bailey and his colleagues reiterated the message that the acceleration in prices this year will likely be temporary, albeit with the exception of the BoE Chief Economist Andy Haldane who stated that an overshoot in inflation represents a bigger risk to the economy than scars to the labour market. However, the commentary from BoE members showed no departure from previous stances, meaning it largely fell on deaf ears for financial markets. Today, the news headlines will follow PM Johnson’s former aide, Dominic Cummings, testimony to a select committee where fresh evidence of the PM’s failure to govern is expected to be released. The testimony is unlikely to move the needle for the pound, but will be viewed as potentially politically damaging for the Prime Minister at a time when the Conservatives continue to poll well across the nation.


Yesterday’s session saw the euro take another leg higher against the US dollar amid broader USD weakness as EURUSD climbed to levels not seen since January, while the euro enjoyed an additional boost from the European Commission’s report on the progress in vaccinations in the EU. EC President Ursula von der Leyen stated yesterday the EU has made steady progress on vaccinations, while a report that was published showed 46% of the EU adult population has received at least one dose. So far, 300 million vaccines have been delivered while 245 million vaccinations have been administered. By the end of September, the EU expects to have enough supply to vaccinate the entire population. Von der Leyen also pointed to a new milestone that the EU will reach this week: half of the EU adults will have received their first dose this week. This should help keep the euro buoyant as the catch-up in vaccination is the biggest growth argument the eurozone is pinning its hopes on. The economic data confirms the current optimism in the eurozone, with yesterday’s Ifo business reading for May reaching 99.2 vs the consensus of 98.2 – the highest level since May 2019. Markets ignored comments by European Central Bank member and voting member François Villeroy de Galhau who stated any hypothesis of a reduction of purchases partly for Q3 or the following quarters is purely speculative, as markets are well familiar with his dovishness. Villeroy will speak at the French National Assembly today at 10:00 BST.


The US dollar is slowly edging back in the green this morning against several of the G10 currencies after its downfall in yesterday’s session, where the DXY index fell by a modest 0.17% to touch its lowest level since January. Federal Reserve Vice Chair Richard Clarida stated yesterday that the Fed may be able to begin discussing the appropriate timing of scaling back their QE programme at upcoming policy meetings, although this would depend on the flow of data. Fed member Mary Daly noted that the central bank has moved from thinking about talking about tapering to talking about talking about tapering – a modest hawkish shift from earlier communications. The comments had little effect on the greenback yesterday as markets did not deem the comments persuasive enough to change market pricing of a rate hike. Today, the data calendar is extremely light for the US, with just FOMC Vice Chair Randal Quarles speaking on his economic outlook at 20:00 BST at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. Tomorrow’s data calendar is more exciting with the release of preliminary durable goods data for April and the second reading of Q1 GDP, both set to be released at 13:30 BST.


The Canadian dollar lagged peers in yesterday’s trading session as it failed to rally against a broadly weakening dollar. The loss of momentum in the loonie rally is notable, with the currency now hovering around a six-year high posted last Tuesday. With oil markets stable at around $66 after recouping much of last week’s decline, the Canadian dollar could look to rising commodity prices again to take the next leg higher. However, the currency will struggle to find any impetus from the economic data calendar as events remain light in Canada. Today’s most noteworthy event is a speech given by BoE Deputy Governor Tim Lane on the future of digital currencies in Canada, which is unlikely to have a market impact. Instead, today’s DoE crude inventory report will likely draw more focus at 15:30 BST with crude oil inventories expected to decline by 750k barrels while a drawdown in gasoline and distillates is expected too. This would be larger than the API report which on Tuesday suggested crude inventories declined by 439k barrels.


The New Zealand dollar enjoyed a significant boost from the RBNZ monetary policy decision overnight, despite the Reserve Bank leaving its policy unchanged. NZDUSD saw a 1.31% increase from overnight prices while AUDNZD fell by 0.80%. The interest rate projection in the monetary policy statement suggested that the rate could start rising in mid-2022, slightly earlier than most had expected, which sent the kiwi rallying across the board. At the same time, the Council dropped the explicit commitment in the statement to cut the OCR further if needed as the line saying to be “prepared to lower the OCR if required” was removed, giving an extra hawkish twist to the RBNZ monetary policy decision. The bid in the kiwi dollar spilt over into AUD as well, which was the second best performer across the G10 overnight. This morning, the Kiwi dollar’s rally has eased somewhat amid a mixed trading session in the G10, but still remains over 1.1% higher on the day.



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