News & analysis


Currency markets once again traded with no strong global theme yesterday, as sterling continued to rally against both the US dollar and euro, and Prime Minister Boris Johnson was released from hospital to recover from his illness at home. Foreign Secretary Dominic Raab has been giving the daily Government press briefing, saying yesterday that the UK had still not passed the peak of the virus, and therefore that the end of lockdown measures was not yet in sight. Elsewhere, the UK and EU will return to Brexit negotiations on Wednesday, after the lead negotiators on both sides fell ill with Covd-19 last month. This week’s call will hopefully fix dates for future negotiations, which will occur virtually. The possibility of an extension in the end of the transitional arrangements that keep the UK effectively in the EU has been denied so far by UK negotiators, but with talks behind schedule and constrained by lockdown measures, speculation on this topic will likely persist.


The euro has remained broadly stable so far this week against the US dollar, while losing some ground to sterling. The eurozone-wide deal struck on Thursday for a spending package to respond to the coronavirus pandemic does seem to have improved the single currency’s footing slightly. This week’s price action has not threatened to undo the modest rally seen last week in the wake of the deal. Lockdown measures in hard-hit countries such as France and Italy will be in focus this week. French President Emmanuel Macron announced yesterday that France’s containment measures would continue into May, with a gradual loosening of restrictions after that. Death rates in the major affected European countries have continued to level out, although the path out of lockdown measures remains highly uncertain, and therefore a source of volatility for the euro.


The dollar continues to trade on the back foot today as the DXY index remains below the 100 mark. Minor risk rallies are weighing on the dollar, but no currency pair currently stands out in both the G10 and EM space as a major performer today. Today, St Louis Fed president, James Bullard, is set to hold a COVID-19 briefing via zoom at 16:35 BST with trade price data scheduled in the data calendar for today. Yesterday, it was set in stone that Joe Biden, the former US Vice President, would be the Democratic candidate for this year’s federal election after Bernie Sanders patched into Biden’s livecast yesterday to give an unexpected yet humbling endorsement. Sanders is hopeful that such a move will bring together a divided party and help limit Donald Trump’s tenure as president to one term, unlike that seen in the 2016 campaign. Meanwhile, in central banking the New York Federal Reserve announced that it will reduce the frequency of some repo operations this month in light of more stable repo conditions. Starting on May 4th, the regional Fed in charge of open market operations will reduce overnight repo offerings to once a day, cancelling the afternoon session imposed last month, while the three-month offering will only be available fortnightly as opposed to weekly. This marks the first scale back in the Fed’s crisis-style package, with many more tweaks likely in the coming months as market conditions return to normality.


After a bout of optimistic pricing last week as OPEC+ discussions continued into the weekend, the loonie closed at its highest level since mid-March. The Canadian dollar’s rally has continued this week despite the unwinding in the crude rally, however. This is likely to do with a softening US dollar across the board more than anything, with risk rallies taking place in multiple currency pairs over the same time frame. After OPEC and its allies, including Russia, signed off on a deal to cut global supply by a record amount of nearly 10% on Sunday, oil markets failed to hold onto their rallies yesterday. Despite the extensive production scale back, which is projected to continue until April 2022 albeit at a lesser pace than in the coming few months, the collapse in global demand has kept a lid on oil markets thus far. Big oil consumers from the G20 including the US, China, India, Japan and South Korea are expected to eventually buy the cheap oil for their respective strategic reserves to boost demand, while helping to extend the OPEC supply cut where possible. Texas regulators are set to meet today to decide if the US will join the OPEC production cuts, however, expectations remain low for a Federal quota system to be implemented due to the resistance from free-market opposition. The loonie isn’t worried with WTI stabilising just above $20, however, as broad USD weakness extends the CAD rally this morning into its fourth consecutive session. This week, all eyes rest firmly on the Bank of Canada rate decision tomorrow at 15:00 BST, with little expected after the central bank hit its effective lower bound of 0.25% and embarked on its first ever QE program over the course of the last month.



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