News & Analysis


This morning, befitting with the rest of the G10 currency board, the pound is trading slightly lower against the dollar as the greenback starts the week on the offensive. Despite the dip this morning, the pound has started the week in relatively tight ranges given liquidity in Asia was reduced by the Japanese holiday. This week, with GBPUSD still trading over a percentage point below the bottom of its early March range, traders will face up February’s CPI data, the spring Budget, and February’s retail sales data. Out of all of the releases, the Spring Budget stands out as the most influential for the pound as the expected tax windfall may be spent to offset the cost of living crisis in the UK. The magnitude of the fiscal response will dictate the medium-term growth outlook. If substantial enough to stabilise the current growth path, new spending measures may make the Bank of England’s task of targeting inflation much easier. This would compound current market expectations and could provide the path for GBPUSD to trade back to its previous range.


Even though this morning’s EURUSD is trading relatively flat, the euro can take multiple cues from European Central Bank speakers from over the weekend. Vice President Luis de Guindos stated he sees no signs of price pressure on wages, pushing back on rate hike expectations, but added the ECB is monitoring inflation developments closely. Fiscal policy should provide temporary and targeted support to help reduce the inflation burden, he stated, and it looks like that ball is rolling. Over the weekend, Austria announced energy subsidies worth €2bn while Germany is considering subsidies for personal mobility and energy. Germany also reached a deal to buy Qatari LNG to cut Russian reliance, while other countries have discussed short-term emergency steps including VAT-cuts on energy products or cuts in excise duties. Elsewhere, ECB member Robert Holzmann stated “the bank could send a clear message about fighting inflation by raising interest rates before ending its stimulus programme of bond purchases”, bringing back the discussions around sequencing. At the same time, Governing Council member Klaas Knot mentioned that market expectations of a rate hike later this year are “quite realistic”. Currently, markets are pricing in 30bp worth of hikes by year-end. Looking to this week, EU heads of government will discuss the soaring energy costs at a summit on Thursday, but diplomats reported that states remain divided on the most effective options to do this. Leaders of Italy, Spain, Portugal and Greece discussed potential caps on gas import prices on Friday, however, other nations have warned against intervening in the wholesale market and oppose a price limit. The EU requires unanimity on these political decisions, but with member states having highly varying sources of energy, it is difficult to create a joint emergency response. This means uncertainties around the eurozone inflation and growth outlook remain prominent and Europe’s power crisis continues to be top of the agenda for market participants.


With markets opening the week with no major headlines from over the weekend and Japanese financial markets closed today for a public holiday, USD price action is more muted this morning. The greenback crept mildly higher as US E-mini futures for equity indices, which are electronically traded futures contracts that represent a fraction of the standard contract, conceded some ground amid rising crude prices. Market participants continue to take stock of Russia’s ongoing war in Ukraine, as Turkey pointed to the growing convergence of some key issues in ceasefire talks. At the same time, Ukraine rejected Russia’s ultimatum demand to surrender the besieged port city of Mariupol. More talks are due today. Elsewhere, US President Joe Biden is set to have a call with leaders of France, Germany, Italy and the UK, to coordinate further responses to the war. Later today at 16:00 GMT, Fed Chair Jerome Powell speaks at the National Association of Business Economists conference on sustainable and inclusive growth. Markets will be on the lookout for comments on rates and inflation after last week’s FOMC meeting saw a 25bp rate hike and signalled six more rate hikes for 2022. With Powell set to speak later, trading ranges for USD pairs may be limited due to the event risk in the afternoon.


Canadian dollar price action was muted on Friday, with the difference between the daily trading range registering at about half the average trading range seen since 2000. USDCAD was virtually unchanged on the day, a solid performance for the loonie considering most G10 currencies fell against the US dollar. The Canadian economy showed strength with January retail sales beating expectations. The data printed  a 3.2% increase from December. While the data are fairly stale due to a 2-month publication lag, it’s still a noteworthy print given that January coincided with the Omicron-related public health restrictions that closed down many high-contact service businesses. This morning, USDCAD continued to trade relatively flat amid a lack of catalysts driving the pair. Despite WTI rising back towards $110 per barrel, a 4% rally this morning due to reports of unrest in the Middle East, any early rally in the loonie has been offset by US equity futures pointing towards a lower cash open. Monday’s economic calendar is fairly light with the Chicago Fed’s National Activity Index being the main data release of the day, while Fed Chair Powell is set to speak this afternoon.



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