News & Analysis


After dropping 1.8% over the course of last week, the pound opens this morning in the same vein as it continues to weaken against the dollar. GBPUSD sits over half a percentage point lower this morning, with the dollar bid across the board amid a renewed risk-off environment. However, discounting the broad dollar move, sterling’s underperformance is visible even against G10 peers, including the euro. Weakness in the pound is likely to persist this week, especially as the focus for FX markets continues to rest on global bond markets and front-end Gilt yields are likely to lag following last week’s dovish BoE meeting. Furthering the pound’s woes is the sparse UK economic calendar this week, with just Q1’s preliminary GDP report out on Thursday.


Hawkish commentary from ECB officials and an already depressed value in the euro saw the single currency outperform G10 peers, excluding AUD, last week. This morning, with the euro already sitting close to multi-year lows, the single currency’s losses continue to be contained despite another broad downturn in risk conditions. Support for the euro will likely come from ECB officials this week, who have all but confirmed a rate hike in July over the past few working days. On the contrary, FX intervention from Asian central banks this week could weigh on the euro as reserves are pivoted away from EUR to USD such that they can be mobilised for intervention in USD crosses. For now, with little scheduled in terms of data and no ECB speakers pencilled in until tomorrow, EURUSD is likely to trade on technicals as it sits close to April’s multi-year low.


The greenback starts this morning on the offensive as risk conditions in markets take another nose-dive, driven this time by the slide in the Chinese yuan overnight in the APAC session. Falling 0.8% today, the yuan has weakened to levels last seen in November 2020 after Peoples Bank of China Premier, Li Keqiang, stated over the weekend that China’s employment situation was “complicated and grave” amid continued lockdowns in major cities such as Shanghai and Beijing. The sizeable move in CNY on deteriorating growth conditions in China highlights just one of the three major sources of USD strength. The others being a deteriorating growth outlook in Europe due to the war in Ukraine and a relatively more hawkish Federal Reserve. The latter is likely to come into focus this week and could potentially see the dollar stabilise as US CPI for April is released on Wednesday. Due to unfavourable base effects, the inflation data is likely to show that price pressures peaked in March. This will thrust the probability of three consecutive 50bp hikes from the Fed into question for rates markets, especially after last week’s dovish Fed meeting and unconvincing labour market data, and could see the broad dollar weaken at the margin. For today, there is very little scheduled out of the US ahead of tomorrow’s commentary from regional Fed presidents.


The loonie fell by a third of a percent against the greenback on Friday amid broader cross-market risk-off sentiment. Towards the end of the week, most economies saw their currencies fall against the US dollar in an environment that saw the S&P 500 equity index fall 0.6% and the VIX implied volatility index remain at elevated levels. That overpowered the roughly neutral impact from fixed income markets–which saw Canadian and US yields move largely in tandem–and the positive CAD tailwind from crude oil prices rising 1.4%. At the 2Y tenor, Canadian yields rose 2.5 bps while US yields rose 2.7bps, and at the 10Y tenor, Canadian yields were up 10.4bps while US yields gained 10.6bps. Meanwhile, on the data front, both countries’ jobs reports on Friday gave mixed messages to markets, with some indicators showing strength and others showing weakness, leading to a minimal impact at the time of the event. This morning, as risk conditions remain tentative in global markets, the Canadian dollar continues to be offered against the haven currency that is the US dollar. With no data due out today, the recent trend in USDCAD is likely to persist.



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