News & Analysis


Despite a risk rally that saw a lot of higher-beta currencies retrace Friday’s payrolls decline, the pound struggled to consolidate its earlier gains yesterday as it finished the day flat against the dollar. Even this morning when retailing data showed the UK consumer increased spending in July due to the heatwave and the increased level of staycations, the pound has struggled to make inroads against the dollar, weakening even against the euro. This is the likely by-product of last week’s harrowing Bank of England meeting. We expect the pound to continue trading on a softer footing this week. Elsewhere, an interview conducted by Reuters saw BoE Deputy Governor Dave Ramsden state that the Bank may continue actively selling Gilts even if they had to cut rates to support the economy. This is the first active discussion of how the Bank would alter policy to offset the upcoming recession.


The single currency joined the broad G10 rally yesterday as it climbed back towards the midpoint of its recent range. Unlike other G10 currencies that completely reversed Friday’s losses, such as AUD, the euro remains some 0.5% off of its pre-payrolls high. Today, the data calendar is empty for the eurozone.


The dollar suffered substantial losses against higher-beta currencies in yesterday’s session as traders looked to retrace Friday’s nonfarm payrolls move amid a stronger session for developed market equity indices and currencies with a stronger association with China’s growth outlook, namely AUD and LatAm FX. The depreciation in the dollar was likely exacerbated by the reduction in liquidity in major FX pairs as a thin data calendar this week ushers in the first real signs of summer trading. The main outcome from yesterday’s dollar depreciation is that the bar is now lower for a CPI induced dollar rally, although the same can’t be said for money market pricing given it has consistently priced around 67bp worth of rate hikes following Friday’s data.


The loonie retraced Friday’s sell-off and then some yesterday as the dollar broadly softened and WTI rallied above $90 per barrel. With very little in terms of economic data this week, the loonie remains sensitive to broader macro conditions, which could turn sharply following a stronger US CPI figure tomorrow. However, it must be noted that the loonie remains a defensive asset in a broad dollar rally that is driven by a hawkish repricing of the US rates curve.



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