News & Analysis


GBPUSD is extending its slide this morning to slide fall further to levels last seen in September 2020, as the risk-off market mood and hawkish Fed expectations are propping up the US dollar. Friday’s poor retail sales and PMI data aren’t of much help to the pound either, however, the data also didn’t lead to a significant repricing of Bank of England tightening expectations. Markets continue to price in six more 25bp rate hikes by the end of the year despite broader downgrades in UK growth expectations over the last months, as in comparison, the UK economy is more resilient to the fallout from the war than other European countries. Still, risks of a dovish repricing in the BoE rate remain ahead of next week’s Bank of England rate decision.


In line with our expectations, EUR traders are ignorant of yesterday’s second round in the French elections: the possibility of a victory by far-right Marine Le Pen had not been priced into EURUSD as Macron’s chance of winning was high, while a relief rally also didn’t occur as political risks remain elevated until the legislative elections in June. This is especially the case as there is an unusual delay between the second round and the legislative election this time around, which increases the probability of the latter being used as a protest vote against President Macron. This would force the Macron to compromise on his domestic agenda. The lack of bullish sentiment on the euro shows the plentiful downside risks to the euro area economy as the war in Ukraine doesn’t look to ease and is set to weigh on growth. The extent hereof and the European Central Bank’s response to this will continue to drive the euro going forward. Looking at today’s data, there is little on the calendar outside of German Ifo and a speech by ECB’s Fabio Panetta at 18:00 BST to shake markets.


Risk aversion has largely dominated price action since the Asian session, largely driven by increasing numbers of Covid-19 cases in parts of China, which is increasing concerns around wider lockdowns. This led to a broader rally in the US dollar, while sentiment was weak already as the war in Ukraine doesn’t look to ease. The U.S. announced new military aid for Ukraine and a renewed diplomatic push as Secretary of State Antony Blinken and Defence Secretary Lloyd Austin finished a visit to Kyiv. Additionally, US and EU officials are in talks over steps the EU could take to restrict crude oil imports from Russia, including a ban, a price cap, and a payment mechanism to withhold revenue that Russia has generated since the start of the war. The calendar for the US is light in the first half of the week, with US durable goods on Tuesday being the main release of note. Later in the week, US PCE, personal income, and spending data will be eyed. There will be no FOMC speeches ahead of next week’s Fed rate


The Canadian dollar weakened by more than a percent on Friday, with USDCAD up three cents from the previous day’s low. The move was primarily driven by continued momentum in the broad US dollar following Fed Chair Powell’s comments that multiple 50 basis point hikes were possible. Risk sentiment and commodities also played a role in the loonie’s weakness. Risk sentiment deteriorated after global equity markets fell, with the S&P 500 down nearly 3% on the day, and VIX volatility index up over 30%, fuelling safe haven demand for the US dollar. Meanwhile, oil prices fell about 2.5%, further weakening the loonie demand. Friday’s CAD price action was largely in line with its G10 commodity currency peers of AUD and NZD. Similarly, this morning’s price action saw petro-linked currencies move in tandem as oil prices fell following increasing worries of a wider lockdown in China as cases start to rise in districts around Beijing and Shanghai. Today, Bank of Canada Governor Tiff Macklem will testify in front of a Parliamentary committee at 11:00 EST/16:00 BST.


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