News & Analysis


The pound managed to grind out a 0.45% gain against the dollar over the course of the last week despite the intraday churn and rise in US yields. The bulk of the returns came on Friday following the release of a perplexing nonfarm payrolls report out of the US (more on that below), while the larger jump in EURUSD on Friday resulted in GBPEUR gains moderating over the course of the week to just 0.53%. This morning, the pound is broadly flat against the dollar but continues to make inroads against the euro as the dollar trades mixed across the G10 space. On the data calendar, this week largely centres around the release of November’s GDP data on Friday, while central bankers are set to speak but not directly on BoE policy. Meanwhile, Boris Johnson remains under pressure from within his own party as the lockdown sceptic Tory Covid Recovery Group suggest the PM could face a leadership challenge after May’s local elections should Covid restrictions linger on for much longer.


The single currency was one of the main beneficiaries from Friday’s release of December’s nonfarm payrolls as EURUSD climbed 0.56% on the day to reverse losses sustained over the course of the week. Meanwhile, as US yields rise again this morning, the euro and yen are back under pressure against the dollar while other high beta currencies within the G10 pack advance. We highlighted this two-speed dynamic in the dollar in our January forecasts, and thus far, this is what has been visible within the G10 space. This week, economic events within the eurozone are light. While some ECB events are scheduled to take place, they are unlikely to discuss the latest policy decision or the economic outlook directly. Within the monetary policy space, ECB watchers will be dissecting the speech made by Isabel Schnabel over the weekend. Broadly, Schnabel highlighted that the energy transition underway in the eurozone could push the central bank’s inflation forecasts higher. Beyond monetary policy and the rates market, focus is likely to be on US-Russia negotiations instead as the Biden administration are set to engage in talks with Russia in Geneva today. With the EU in the direct firing line of any spillovers in the Ukraine-Russia crisis, and with Nato on standby should talks breakdown and tensions escalate, risk-off dynamics within the eurozone may become starkly visible within EGBs and CHF price action.


Friday’s release of December’s nonfarm payrolls was perplexing for markets as another stark divergence in the establishment survey and the household survey appeared. The net increase in payrolls substantially undershot already low expectations of 450k with a reading of 199k, while the unemployment rate fell from 4.2% to 3.9% despite the participation rate rising slightly from 61.8% to 61.9%. The initial reading of the net payrolls data was negative for markets and saw the dollar sell-off, however, minutes afterwards the narrative shifted as the full report was digested. Instead, the consensus moved towards the US labour market reaching near full employment and hence the low net employment levels, rise in earnings and the drop in the unemployment rate. This sent Treasury yields higher across the curve, but front-end rates struggled to hold above the 0.9% barrier. The dollar continued to sell-off in the G10 space, however, most pairs remained within recent ranges. This week, US rates markets will remain the point of attention within markets as sell-side analysts adjust their calls for the Fed this year on the back of December’s payrolls data, like Goldman Sachs who over the weekend adjusted their view to 4 rate hikes this year, while US inflation data is analysed on Wednesday when the CPI report is released. Meanwhile, a flurry of Fed speakers will likely keep markets choppy as headline risk is plentiful. For today, San Francisco Fed President Mary Daly is set to discuss monetary policy at 15:00 GMT, while the other notable policy discussion comes from the Bank of England’s latest member Catherine Mann who is set to discuss the US economy at 17:15 GMT. Outside of economic events, the start of US-Russia discussions in Geneva today will be closely watched as any breakdown in talks could result in harsher economic sanctions and shift the risk environment.


The loonie pounced on the slip in the US dollar following December’s payroll data and the strong Canadian employment figure to rise to levels last seen at year-end when the greenback sold off heavily across the board. This morning, with events light for the loonie this week, the currency is trading relatively flat along with US equity futures despite the rise in US yields again this morning. The reaction in Canadian bond markets and North American equity indices will likely prove pivotal in determining how CAD trades today as European investors refrain from taking a position, especially one that forces the currency to fresh near-term highs, this morning.

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