News & Analysis


The pound’s limited relief rally on the signs of de-escalation in Ukraine meant it was fairly well protected from yesterday’s repricing after negotiations seemingly came to a halt. The pound held steady against the dollar, despite the greenback going bid on risk-off and month-end flows, resulting in a 0.8% rally in GBPEUR. The pound starts this morning on the back foot despite oil benchmarks dropping below $100 per barrel on news that the US will release 180m barrels from their strategic reserves. Meanwhile, this morning, UK consumers will arise to the news that their energy bills will increase by around 54% this month as the Ofgem energy cap increase comes into effect. The pound’s fortunes will largely rest on how well consumers weather another shock to their real incomes as any substantial dip in growth conditions will limit the extent to which the Bank of England can hike rates to control inflation. Data out today centres on the final manufacturing PMI reading for March, with no change from the preliminary estimate of 55.5 expected.


The euro traded on the back foot across the G10 in yesterday’s session, strengthening only against SEK and NOK, due to their higher sensitivity to the European macro outlook and benchmark oil prices, as uncertainties around gas supply continued to weigh on the shared currency. Russia’s Putin stated gas exports will be halted if payments are not made in rubles from April 1 onwards. Buyers in 48 countries, including the EU, should open special accounts in state-controlled Gazprombank to allow foreign currency to be swapped into rubles for settlements, according to an order signed by Putin. This further exacerbates stagflationary fears in the eurozone as the bloc relies heavily on Russia for gas and sanctions restrict such banking actions. Germany and Austria on Wednesday said they were preparing for energy rationing, but regardless, gas prices and inflation expectations in the eurozone will remain volatile. Italian President Mario Draghi said on Thursday he believes Russia has stepped back from its demand for payment in RUB, and does not expect supplies of gas to be cut off, but this has not yet been confirmed. In terms of data, Eurostat reported that the eurozone unemployment rate stood at 6.8% in March, above the market consensus of 6.7%. The data comes as inflation concerns in the eurozone are mounting while market bets on rate hikes by the ECB are growing. At the same time, the economic downfall from the war has made markets wary of growth shocks, which means disappointing economic data may weigh more substantially on the single currency. On the political front, France is preparing for its national elections as we enter a new month. With just 10 days to go before the first round on April 10, Marine Le Pen is now polling in second place behind incumbent President Emmanuel Macron. Current polls suggest she is 3-7% ahead of third-placed Mélenchon, meaning she is likely to qualify for the second round on April 24. This is a significant shift in polling numbers, given that Macron was regaining popularity since the Russian invasion of Ukraine called for political leadership to be stable and without surprises. Macron’s win would also be most favoured by EUR bulls, as leadership by Le Pen would mark a significant shift in French politics at a time when economic uncertainties are high.


Treasury yields fell across the curve yesterday as news that the Biden administration will release 180m barrels from the Strategic Petroleum Reserve. Despite the reduction in yields, the dollar firmed across the board on haven and month-end flows as signs from Ukraine suggest peace talks are hitting an impasse – this reversed previous risk-on pricing on the potential de-escalation. This morning, the dollar remains bid across the G10 space as Treasury yields start the session on the rise. US Nonfarm payrolls for March, set to be released at 13:30 BST, may potentially further this dynamic if the latest labour report suggests further inflation pressures are arising from a hot labour market. Expectations currently sit at a 490k increase in net employment, with hourly average earnings set to rise from 5.1% to 5.5% YoY, following a strong ADP print. Should the labour market data remain robust as it has thus far this year, markets are likely to fully price in back-to-back 50bp hikes from the Fed in May and June. Outside of the US economic data calendar, peace talks are set to resume today.


The Canadian dollar was down 0.32% after trending lower throughout the Asian and European trading session yesterday, as market risk sentiment soured on news that peace talks hit an impasse and WTI traded lower on signs of a US oil supply increase. Most of the CAD losses were recouped in the North American session after strong GDP data showed the Canadian economy grew by 0.2% in January and 0.8% in February. Growth conditions are now substantially better than the Bank of Canada’s projection from its January Monetary Policy Report, which reduces the downside risk from raising rates and bolsters the odds of a supersized 0.5% hike this cycle. A broad-based rally in the US dollar played a role in CAD’s depreciation, with global risk sentiment worsening as evidenced by global equity markets and the VIX index. The VIX measures the degree of market volatility implied by S&P 500 options and is often used as a barometer of overall market sentiment. Today, we think US payrolls at 13:30 BST could be decisive for USDCAD price action, as it’s an important and closely-watched indicator of US economic conditions. Also on the agenda is Canada manufacturing PMI data from S&P Global at 14:40 BST.


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