News & analysis


Sterling has pared some of its recent gains this morning as Boris Johnson flies to Luxembourg for his first meeting with Jean-Claude Juncker. The meeting comes ahead of the crunch EU Council summit next month, and headlines have focused around Johnson’s reiterated stance of no-extension. The FT reports this morning that the UK could stay in a standstill transition until the end of 2022, with the Liberal Democrats making a revocation of Article 50 part of their new manifesto. Elsewhere this week, the Supreme Court is likely to make a ruling on whether the proroguing of Parliament was legal, and the Bank of England meets on Thursday. The Bank of England’s outlook on the UK economy will cause investors to tune in as a recession in Q3 remains on the cards. According to the British Chambers of Commerce, the UK is now expected to grow 1.2% in 2019 from 1.3%, and 0.8% in 2020 compared to previous estimates of 1.0%.


The euro continues to rally following last week’s ECB meeting as risk sentiment in markets chops and changes. The data calendar for the euro is light this week, with only the German ZEW expectations index released tomorrow and Eurozone inflation data on Wednesday. Outside of raw data, however, and arguably more interestingly, a plethora of ECB speakers are scheduled. The stance of each speaker has become increasingly important after two hawkish members, Weidmann and Knott, came out last week stating the ECB’s response to the Eurozone slowdown was too dramatic.


The US dollar is marginally on the back foot today as political tensions in the middle east begin to rise. The US swiftly accused Iran of carrying out the drone attacks on Saudi oil production facilities, with Secretary of State Pompeo quickly pointing the finger on twitter. This comes shortly after the reduction of US sanctions on Iran, marking a substantial breakdown in progress. Trump said the “US is locked and loaded depending on verification” from Riyadh, highlighting the tenuous nature of progress between the nations. The broad dollar DXY index continues to trade near recent highs, however. On the data calendar, monetary policy is back in scope for the dollar as the Federal Reserve meets on Wednesday for what is likely to be another rate cut announcement. Markets have completely priced this in, but a glimmer of forward guidance is still much needed from the Fed, especially given the renewed optimism over a US-China trade deal.


The continual slide in crude last week weighed on the loonie, which ended up reaching levels not seen since the Bank of Canada rate statement. However, developments in the middle east over the weekend has helped the loonie claw back some losses this morning as the oil sensitive currency sits a third of a percentage point higher at open. WTI crude is up 7.8% this morning with Brent touching the 10% mark after rallying some 20% at the open of Asian trading hours. The move in Brent futures was the largest intraday jump since 1988 and comes following a drone attack on a key production facility in Saudi Arabia. Despite President Trump announcing that the US will fill the supply void, which is estimated to be around 5% of global supply, only minutes prior to the open, the extent to which the US will fill the void remains unknown. The move in CAD was nothing historic though and has left the pair trading at the same level as it did post-BoC. Outside of the oil sphere, inflation data is released on Wednesday and is likely to maintain the current trajectory which has core inflation measures trending around the 2% target.