News & analysis


Sterling continued its slump yesterday as concerns over financial regulation and access to the single market weighed heavy on markets minds. The Financial Times reported that PM Johnson’s request for fishing rights may be played off against financial services. Concerns were reiterated by the ECB President Christine Lagarde in yesterday’s speech, where the central bank head stated that Brexit shouldn’t result in a race to the bottom with regards to financial regulation. In a week marred by mixed risk sentiment, the pound heads for its worst week of 2020 and its worst week since December 20th.


The euro has fallen victim to the wave of dollar strength seen over the past couple of days, and is trading at its lowest level against the greenback since October. German data has continued to have an awful week, with a dramatic 3.5% fall in monthly industrial production for December released this morning, in the wake of yesterday’s collapse in factory orders. The consensus forecast was for only a 0.2% fall, while the year on year rate fell to -6.8%, painting a stark picture of outright recession in the industrial sector of the eurozone’s most important economy. Given the recent improvement in survey data, there is some hope that January’s figures will show improvement. Germany’s trade balance was also released this morning, and showed the nation’s trade surplus falling to 15.2 billion euros in December, broadly in line with expectations. French industrial production was similarly disappointing, falling 2.8% in December.


The dollar enjoyed a sizable and broad wave of appreciation yesterday, as the rally in risk appetite seen in the middle of the week came partly undone. Measured from the beginning of Thursday, the dollar is up against the entire basket of G10 currencies, with the smallest losses going to CHF and JPY, and the largest going to AUD and SEK. Emerging market currencies are also mostly in the red over the same time frame, with the biggest losses going to ZAR and RUB. US data this week has supported the dollar, with the ADP non-farm payrolls estimate on Wednesday suggesting a strong January for the labour market, while unemployment claims yesterday printed low at 202,000. The Dallas Fed’s Robert Kaplan spoke yesterday and said he believed that interest rates were “roughly appropriate” and that changes were not necessary based on his current assessment. The weighted DXY index of USD vs major currencies is trading at a high for the year, and is on track to enjoy its biggest weekly gain since September. Today’s non-farm payrolls report, therefore, will be facing high expectations when it is released at 13:30 GMT.


The loonie continues to sell-off this morning as the US dollar continues to firm while oil markets provide little support. Following a three-day OPEC+ meeting in Vienna, markets still await confirmation from Russia regarding an extension to the current production cuts until the year-end while a deeper production cut in the short-term is still weighed. Today, the Canadian labour market report is released at 13:30. In January’s BoC meeting, Governor Poloz leaned heavily on the tightness of the labour market despite dovish discussions of underlying domestic economic activity. “Labour markets in most regions have little slack and wages continue to firm” read the latest monetary policy statement, while capacity constraints in the form of the labour market were also reported in the winter Business Outlook Survey. Expectations for today’s release sit at 5.7% for the unemployment rate, which marks a slight loosening of the labour market from 5.6% in December due to a rise in the participation rate, along with cooling wage growth. The median wage growth estimate is 3.6%, down 2 percentage points from the December report.



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