News & Analysis


Last week’s budget statement was the standout economic event for the pound, with volatility drying up thereafter. Broader market developments then drove sterling’s direction, especially against the dollar, as it moved in lockstep with the euro. This morning, wider market pricing continues to dictate GBP price action as the pound starts this morning a fifth of a percentage point lower against the dollar. Befitting with last week’s price action, the magnitude of sterling’s losses are in line with those in EURUSD. This week, with a limited number of economic releases scheduled out of the UK, the pound is likely to continue being driven by cross-market price action, and more specifically the performance of US Treasuries. Today, Bank of England Governor Andrew Bailey speaks at the Bruegel Institute about @macroeconomic and financial stability in changing times” at 12:00 BST, while Chancellor Rishi Sunak testifies in Parliament about his spring budget statement, which was released last Wednesday, at 14:00 BST.


While the bout of USD strength is weighing on EURUSD this morning, the euro is actually performing relatively well across the G10 currency board. The focus this week will be on inflation readings on Wednesday and Thursday for March, after the ECB surprised markets with announcing a quicker taper to its asset purchase programme earlier in the month. The average economist surveyed by Bloomberg expects the headline rate for Germany to move to 6.0% while the eurozone print is set to come in at 6.7%. The key detail will be the core rate, as markets have now nearly fully priced in the fact that the headline rate is going to be strong due to the war in Ukraine and its impact on energy prices, but the extent to which the core print remains high in the next months can determine the next policy step for the ECB. For today, some focus will turn to ECB Governing Council Member Olli Rehn at 11:00 GMT, who delivers opening remarks at the Bank of Finland Institute on the Russian economy. Beyond that, the light calendar means broader macro flow and risk sentiment will be bigger drivers for the euro.


As markets continue to ramp up rate bets by the Federal Reserve, rising front-end Treasury yields propped up the dollar upon open this morning. Markets continue to see multiple 50bp rate hikes by the Fed this year as inflation expectations mount while Fed officials don’t bother to push back on these expectations, signalling many of them are comfortable with larger rate hikes. Elsewhere, the Japanese yen still fell after the Bank of Japan said it will purchase an unlimited amount of 10-year bonds to cap the interest rate differential with the US, as US yields still rose at a faster pace. The topic of FX intervention has hit the newswires as the yen is trading at a six-year low, but previous levels at which intervention took place indicate FX purchases may still be a long way away.  Looking ahead to this week, the dollar may find more support if economic data confirms markets’ hawkish views. This week we will see JOLTS jobs opening data, ADP and Nonfarm payrolls data throughout the week. The Nonfarm figure is expected to print at 500k, which would be enough to embolden further hawkish expectations.


The Canadian dollar was late to the party on Friday, but the gains seen later in the day largely reflected an improvement in the currency’s fundamentals. Front-end yield spreads were back to favouring the loonie after a brief flip in the morning, while a last minute jump higher in crude oil prices also helped bullish CAD sentiment. The loonie’s rally on Friday marked the ninth straight trading day where the loonie strengthened, although that hot streak looks to be threatened today as the broad US dollar goes bid across the entirety of the G10. Today, Bloomberg’s Nanos Confidence data for the week of March 25th is the sole data release.

FX Elsewhere

The Japanese yen continues to grab the attention of G10 FX traders as the currency pair sits in a strong upwards trend channel, largely due to widening yield differentials. After Bank of Japan Governor Haruhiko Kuroda’s remarks that the nation’s ultra-loose monetary policy will remain unchanged even if inflation jumps, rising US yields due to expectations of a more active Federal Reserve amid this inflationary environment has sent USDJPY over 6.5% higher since March 11th. This morning alone the pair has climbed over a percentage point higher as the Bank of Japan embarked on two fixed-rate bond buying operations to keep 10-year yields capped at 0.25%. With Japanese bond traders not completely content with the idea that the Bank will be able to maintain its policy framework, the central bank has announced that it will conduct further fixed-rate purchasing operations for 10-year JGBs at a yield of 0.25% each day until Friday. With the BoJ not moving on its current policy framework, and US yields heading one way in the run-up to Friday’s payrolls data, pressure on JPY is likely to persist throughout the course of the week.



This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.