Sterling has struggled over the last two trading sessions, falling 1.3% in total. The pound is exposed to the downturn in risk appetite and the firming of the US dollar with little positive new information in play. The tit-for-tat vaccine developments between the UK and EU have also contributed to the downwards pressure placed on sterling. With access to vaccines potentially more limited than previously, even though there have been signs of easing tensions, poses a risk that the UK’s roadmap to reopening may not be met as quickly as the government’s tentative time frame. In addition to that, rising cases in Europe also pose a threat to the UK economic outlook. These negative risks have arguably been priced into the pound now, with sterling stabilising against the dollar and marginally rallying against the euro this morning. Sterling’s price action didn’t share the same positivity as the Bank of England’s Chief Economist yesterday, who spoke on ITV about how the economy could exhibit a dramatic recovery if some of the increase in household savings is spent upon reopening. However, there is much debate within the central bank’s monetary policy committee about how consumers view this rise in household savings and whether it is going to be spent once the economy is reopened or stored as new wealth. Today, focus will be on Governor Andrew Bailey who is set to speak at the BIS innovation summit at 9:30, with a virtual Q&A pencilled in at 10:00 GMT. Meanwhile, data-wise, the CBI retail report for March is due for release at 11:00 GMT.
The euro continued to trade lower against the US dollar for a second consecutive day as risk aversion weighed more for currency markets than the better-than-expected Purchasing Managers’ Index figures or Chancellor Angela Merkel’s reversal of the 5-day strict lockdown around easter. Instead, headlines around the efficacy of the AstraZeneca vaccine may have weighed on the euro as new studies showed an efficacy of 76% compared to the previously concluded 79%. The difference is only marginal and comes after the sample was expanded with 49 additional cases, but may have an unproportionate impact in FX markets following the current risk aversion. This morning’s economic data included an improvement in German consumer confidence for the second month in a row, boosted by the initial easing of lockdown measures in March. With measures being reversed since this week however and the lockdown being extended through mid-April, chances are the recovery in confidence is not sustainable. For the remainder of the day, markets turn to several ECB speakers including Christine Lagarde at 09:00 GMT at the BIS Innovation Summit, while comments by Isabel Schnabel and Luis de Guindos at 17:00 GMT will also be watched.
The dollar sat broadly firmer throughout yesterday’s session as obstacles in the way of a broad-based economic recovery remained, while the greenback only posted losses against petro-currencies such as CAD and NOK due to the rebound in oil prices stemming from the blockage in the Suez canal. Comments from Fed Chair Powell and Treasury Secretary Janet Yellen largely mirrored those on Tuesday when testifying to the Senate banking committee. This morning, the greenback is taking on a bit of water at the margin, with higher-beta currencies like AUD and NZD leading the G10’s retracement. Little new negative risks have reared their head overnight, suggesting the dollar’s recent bout of strength due to risk-aversion is starting to consolidate. Today, more FOMC speakers are in the schedule with Vice Chairman Clarida set to speak on the outlook for the economy at 14:10 GMT, with Evans and Daly due to speak at 17:00 and 23:00 GMT respectively. Yesterday saw Chicago Fed President Charles Evans voice concerns about sub-2% inflation after the temporary bump that is incoming due to technical factors. Speeches by FOMC members are helping markets dissect the dot plot and understand the broad consensus that sits behind closed doors.
The loonie was one of only two G10 currencies to rally against a broadly firmer dollar yesterday. The move in CAD and NOK was due to a stabilisation in crude oil markets, with WTI retracing all of Tuesday’s losses with a 6.79% rally as supply fears offset previous concerns of rising inventories. The blockage in the Suez Canal continues today in what is being dubbed “the world’s most expensive traffic jam”. The 200,000 ton Ever Given has been blocking the Suez Canal since Tuesday morning, restricting about $9.6bn of daily marine traffic with around 10% of global shipping travelling through the canal. While crude oil prices completely retraced Tuesday’s losses, FX markets are aware that it is a transitory factor, meaning both CAD and NOK failed to fully retrace losses sustained earlier in the week. Today, the loonie is benefitting from a more upbeat tone in markets relative to that seen throughout the week as it sits 0.09% higher on the day. The only notable data release scheduled is the March CFIB Business Barometer at 10:00.