News & Analysis


The pound struggled for direction in yesterday’s session. While on the one hand, global risk sentiment soured and bearish sentiment lingered over the pound following the dovish Bank of England meeting last week, both of which pointed to a weaker GBPUSD. While on the other hand, sterling’s losses have already been pronounced since Thursday’s BoE meeting, with the currency trading 2.4% lower and at multi-year lows, while falling US yields from haven demand reduced the impact of falling Gilt yields. In sum, the two dynamics netted each other off, leaving GBPUSD to close out the session only slightly lower. Similar muted price action is visible in the early hours of today’s session as the pound trades flat on the day at the time of writing, with the overnight range limited at just 0.47%. In the early hours of this morning, April’s BRC like-for-like sales showed a 1.7% contraction, a decline from March’s -0.4% YoY reading. This is just another data point highlighting the pressure on consumption levels due to rising inflation.


Similar to the pound, a reduction in US yields and already cheap valuation limited the euro’s losses in yesterday’s session. In fact, the single currency was one of the only currencies within the G10 space to close the day out up on the broadly stronger greenback. The higher close in EURUSD was marginal, however, and upside looks to be contained with further sanctions set to be imposed on Russia, which will come at the cost of domestic economic growth. At the moment, the EU’s phased in ban on Russian oil is facing key opposition from Hungary due to their higher dependence on the fossil fuel. Talks between Brussels and Budapest are set to continue today, with the results set to be closely eyed by EUR traders. Outside of political developments, the economic calendar is fairly populated for the eurozone relative to other economies. Germany’s ZEW expectations report is due to be published at 10:00 BST and will likely show a deterioration in the current situation due to higher inflation conditions and supply chain bottlenecks, with expectations also set to slump further to -43.5 as growth conditions are set to continue slowing. On top of this, ECB speakers are set to hit the wires this afternoon, beginning with Germany’s Joachim Nagel at 15:00 BST, who is likely to cast the most hawkish message. Expectations have solidified around a July hike, meaning markets will look for forward guidance on the magnitude of future hikes and how quickly the ECB looks to bring rates back to 0%.


A squeeze in global equities drove broad market sentiment yesterday as a confluence of lower growth expectations in China, pressure from central bank tightening, and liquidity concerns in some markets resulted in a classic risk-off session. The dollar went bid again in this dynamic, extending gains seen overnight in the APAC session following news of tighter lockdowns in China. While GBP and EUR posted mild bounces against the dollar throughout the day, likely due to the reduction in US front-end yields releasing some pressure on the interest rate sensitive currencies, we’re hesitant to start picking holes in the broad dollar strength argument just yet. This morning, global equities are pointing higher following yesterday’s session. S&P 500 futures are currently trading over a percentage point higher, suggesting a reversal of yesterday’s 3.2% loss may be due today, while European equities are also climbing higher in early trading. With equities suggesting an improved risk environment, the dollar is trading weaker against pro-cyclical currencies. Those with the highest risk sensitivities within the G10 space, i.e. SEK and AUD, are leading gains in the G10 space today. But, this is largely due to the fact that they experienced the largest drawdown in yesterday’s session. Today, equity performance is likely to be the main driver across global markets amid an extremely light economic calendar. There are some Fed speakers set to hit the wires this afternoon, with the most notable comments set to come from neutral voters John Williams at 12:40 BST and Tom Barkin at 14:15 BST.


The loonie fell nine tenths of a percent on Monday, the third consecutive day of losses for the Canadian currency. This was a big move in USDCAD: at two standard deviations, the currency pair is likely to rise by that amount or more less than ten times per year. However, this year is unlike previous years and volatility in the cross-asset space remains high. With volatility so elevated in the Canadian dollar as of late, the loonie has already recorded two such moves higher in the past fortnight. Nevertheless, the daily move in spot USDCAD saw the loonie sit in the middle of the G10 pack as the US dollar went broadly bid. Also in yesterday’s session, global equities plunged, keeping risk sentiment poor, with the S&P 500 closing 3.2% in the red and the tech-heavy NASDAQ index down 4.3%. The other major headwind for CAD was crude oil, which fell more than 6% on the day, a 2-standard deviation drop. Most economies saw their bond prices rally on Monday, reducing their yields. The US and Canada 2Y yield are virtually the same at 2.6%, while the US 10Y yield exceeds the Canadian yield by a tiny 2bps. This suggests that there is little in the yield differential narrative to explain CAD depreciation of late. Yesterday, both countries bonds’ fell about 9-14bps throughout the curve. The US and Canadian yield differential has stayed minimal after converging in early February, having reached spreads in excess of 50bps back in Q4.



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