News & Analysis


The pound starts this morning up around 0.15% against the dollar, with greater gains recorded against the euro. The rally in GBPUSD can be viewed merely as a retracement of Friday’s nonfarm payroll induced losses, while the rally in GBPEUR highlights continued divergence in the UK and eurozone economies due to renewed recession concerns in the continent. This week, the UK economic calendar largely focuses on Bank of England speakers, with Deputy Cunliffe set to speak at the European Economics & Financial Centre Distinguished Speakers seminary today at 15:00 BST, while Chief Economist Huw Pill is set to speak at the Bank’s 8th International Conference on Sovereign Bond Markets on Thursday at 13:15 BST. Data wise, final services and composite PMI readings for March are due today, with the construction version tomorrow.


EURUSD is struggling to move higher this morning despite other procyclical currencies rallying, as an extended rally in the 2Y US Treasury yield is capping euro gains. Similarly, the Japanese yen is trading on the back foot this morning given the yen’s even higher sensitivity to rising US rates. After last week’s nationwide inflation prints from the eurozone, which came in piping hot, European Central Bank member Isabel Schnabel stated over the weekend that the ECB is right to press ahead with plans to normalise policy even as the war increases uncertainty. The speed of normalisation will depend on the economic fallout from the war, and the severity and persistence of inflation, she added. Looking ahead to today’s session, investors will focus on the Eurogroup meeting. This may keep the single currency on the sidelines while markets await further headlines around renewed sanctions from the west. In the background, peace talks between Russia and Ukraine will be watched.


Markets started the week with a rise in Antipodean currencies in the G10 FX space while safe haven flow was limited, despite the risk of tighter sanctions against Moscow after Russian troops retreating from the suburbs of Kyiv left evidence of potential war crimes against the civilian population. Market closures in China and Taiwan meant price action in the APAC session was slightly more muted, but the New York session later today may see renewed volatility in markets as US factory orders and final durable goods orders are expected at 13:30 BST. The risk of renewed sanctions from the West could see market sentiment chop and change throughout the day, especially as US markets open. Meanwhile, financial media will concentrate on the inversion of the US Treasury curve, specifically in the 2-10 year spread, given its historical accuracy as a recession indicator. Once adjusted for inflation, however, the steepness of the yield curve reappears, suggesting that the latest inversion in nominal terms isn’t as distressing as previous instances.


The Canadian dollar edged lower against the US dollar on Friday, largely driven by three core themes. First, US payroll data showed that the US economy added 431,000 jobs in March, lowering the unemployment rate to 3.6%. Despite falling short of analyst expectations, the data nevertheless showed a solid increase considering the typical monthly gain (using the last 30 years of data) is about a quarter of that size. The jobs data led to a spike in US government bond yields, which in turn raised demand for US dollars. Second, US President Biden announced that his administration would release 1 million barrels per day from the US Strategic Petroleum Reserve for six months in an effort to combat high oil and gas prices. Energy prices have been high ever since the Russia-Ukraine conflict inflamed concerns over limited supply. The drop in oil weighed on loonie demand, further contributing to the increase in the USDCAD pair. Finally, a mild deterioration in risk sentiment, inferred from global equity markets, drove limited haven flows into the US dollar. Today’s calendar has two data releases that will be highly insightful in helping to gauge the Bank of Canada’s likeliest course of action in April. The Business Outlook Survey and Canadian Survey of Consumer Expectations provide crucial soft data on businesses’ and consumers’ inflation and wage expectations, which play a major role in the Governing Council’s policy deliberations.


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