In what was a limited data calendar yesterday, the pound trod water against the dollar while making further inroads against the single currency. All eyes remain on Wednesday’s budget, with headlines yesterday suggesting that an increase in the national living wage to £9.50 per hour and £6bn in extra funding for the NHS were in store. Meanwhile, in the political space, speculation over tighter Covid restrictions is elevated after government documents of “Plan B” were leaked to the press. The back-up plan would include a five-month period of mandatory mask wearing, vaccine passports and work-from-home guidance, and is estimated to cost the UK economy £18bn. The leaked documents come just before Sunak’s budget, which handily uses a lower GDP baseline to allow for leeway in the economic outlook, and at a time when pressure on the government from health officials has increased. With this economic background brewing and little in the data calendar, GBP volatility is likely to remain light ahead of key events later in the week.
The euro was among the worst G10 performers against the dollar in yesterday’s session, as a number of drivers weighed on the currency, including higher US yields before they moderated in the latter part of the trading day. The move in fixed income markets coincided with a six-month low in German business confidence as global supply woes dampened momentum in Europe’s largest economy. The gauge dropped for the fourth time in a row and now stands at 97.7. The report comes just a few days before European Central Bank policy makers gather to gauge the state of the economic recovery. ECB member de Cos remained concerned about the economic recovery yesterday given the supply-chain issues and rising raw material prices, which also weighed on the euro in yesterday’s session. EU energy ministers will meet today to discuss how to protect households and companies from the soaring power and gas prices. There will likely be dissent among the ministers with some countries calling for the EU to implement new intervention tools, while a separate group will argue the price surges are temporary and need less dramatic reforms. Beyond that, markets will eye the speech by European Central Bank Governing Council member Francois Villeroy de Galhau at 16:45 BST.
The DXY index rose to fresh 5-day highs yesterday, although the bulk of the dollar strength was felt in the euro while the dollar only moderately rallied in other components of the DXY index. Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen had constructive talks around the macroeconomic situation and the nations’ cooperation, which arguably capped the dollar’s gains in pairs other than EURUSD. Meanwhile, Senate Democrats moved closer to an agreement on the Biden plan on Monday as they strive to strike an agreement this week, but some House lawmakers raised concerns about the terms of the deal and whether issues around these terms could be resolved in the next few days. Markets await Consumer Confidence figures from the US at 15:00 BST today.
The Canadian dollar struggled to hold onto the oil rally yesterday as it slipped at the margin against the US dollar. The loonie’s losses occurred at a time when not only oil was higher, but US equity indices closed in the green and the TSX marked its longest consecutive rally in history. With very little in the way of economic data today, and the Bank of Canada scheduled tomorrow, today’s session is likely to be the calm before the storm.