News & Analysis


Despite a deluge of activity data and mounting political pressure on the Johnson government, the pound’s returns against the dollar over the course of the week were minimal. However, the 0.22% return over the week understates the daily volatility in GBPUSD as the pair traded within an average range of 0.852%. This morning, the pound has caught a renewed bid around the cash open of Gilt markets at 08:00 BST, and although the 0.2% gain on the day sees the pound sit as one of the best performing G10 currencies on the day, the pound still trades comfortably within last week’s range. This week’s data calendar is fairly light for GBPUSD, with most of the attention directed towards Bailey’s comments at the ECB Forum on Wednesday at 13:30 BST. On top of Bailey, markets will also focus on the first public appearance by newly appointed committee member Swati Dhingra on Wednesday at 14:15 BST. Dhingra, who is a trade specialist and a vocal critic of Brexit, is set to replace hawkish MPC member Michael Saunders shortly after the next policy meeting on August 8th.


The single currency broadly tracked higher against the dollar last week, despite slipping on Thursday following a downturn in June’s preliminary PMIs. This morning, with equities trading higher and Treasury yields remaining in recent ranges, the single currency extends last week’s trend. The data calendar is more populated for the EUR this week as the ECB’s annual central banking forum in Sintra is set to begin. Although Wednesday’s session looks to be the more market moving as global central bank chiefs attend a panel hosted by Bloomberg’s Francine Lacqua, tonight’s welcoming remarks by President Lagarde at 17:30 BST shouldn’t be disregarded by markets. Usually, the welcoming remarks set the tone of ECB communications over the three-day event.


The dollar broadly weakened against the G10 last week as recession fears continued to dominate cross-asset price action, especially Treasury yields. Although we wrote at length last week about the repricing of the Fed’s implied rate path, it wasn’t just growth concerns that weighed on bond yields, but inflation expectations too as global commodity benchmarks tumbled over the course of the week. The two-year breakeven, for example, fell by 12bps on the week. On the topic of inflation expectations, an unexpected cooling of the University of Michigan’s 1 year and 5-10 year inflation expectations measure weighed on Treasury yields further towards the end of the Friday session, extending the dollar’s decline in the process. However, the earlier move didn’t consolidate and Treasury yields soon rebounded to keep the dollar’s depreciation capped over the course of the week. Generally speaking, currencies boosted by unexpected hawkish policy decisions (NOK and CHF) rallied the most against the greenback, followed by the Canadian dollar which benefited from a turnaround in equities on Friday and a surge in domestic inflation. Beyond that, returns in the G10 were limited, especially in commodity currencies like AUD. The Japanese yen was the only G10 currency to depreciate against the dollar on the week. Despite increased recession risks and lower core yields, the yen remained weaker as the rebound in equities posed a hurdle. This morning, risk sentiment is better bid across global markets, weighing again on the dollar. Although, with limited overnight events, the moves in G10 FX markets this morning are minimal. While preliminary US durable goods data for May could provide some direction for markets at 13:30 BST, traders will likely have to await the US equity open for a clearer signal. Additionally, the opening remarks by ECB President Christine Lagarde at Sintra this evening could prove decisive for the broad dollar.


On Friday, the loonie started the day strong, buoyed by positive risk sentiment. That strength was quickly compounded at 10:00 ET/ 15:00 BST following the release of the University of Michigan’s inflation expectations data. That data, which normally has a middling impact on FX markets, helped CAD rally over half a per cent in just over an hour. The survey showed long-term inflation expectations surprise to the downside, coming in at 3.1% for June vs. the expected hold at 3.3%. With inflation expectations falling, Treasury yields slipped and US equity benchmarks received a tailwind. The move in equity markets provided the loonie with the biggest tailwind. Although usually only a peripheral data release, the UMich survey was more closely tracked than usual after the Federal Reserve cited it as one of the two data points underlying their reasoning for delivering a 75bp hike instead of the promised 50bps.With equity futures printing in the green this morning, the loonie’s rally continues this morning despite nothing being scheduled on the economic calendar for Canada today.



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