Sterling made further inroads against the US dollar yesterday, and has slightly pared back its gain in morning, in price action generally consistent with other major currencies. Interestingly, sterling has not seen the same scale of losses this morning as NOK, AUD and NZD, three currencies usually perceived as being more sensitive to marginal changes to risk appetite. UK money and credit data from the Bank of England released yesterday showed that consumers had begun to borrow again, with an increase in housing market activity accounting for the first increase in household net borrowing since March. Mortgage approvals rose to 40,000 in June, up from just 9,000 in May, but still significantly below typical pre-crisis levels. Cash holdings by households and companies rose, but at a slower pace than seen over recent months. Trade talks between the UK and Japan will miss the July 31st deadline that was previously considered necessary to allow for ratification this year, despite officials on both sides reportedly saying a deal was close. Japan is currently the UK’s 14th largest trade partner, behind Poland and Canada but ahead of Russia.


“Take a seat, GDP is going to get ugly” is today’s leading preview on Bloomberg for the eurozone data. The single currency is already trading off of its recent two-year high as the dollar bounces back and concerns rise over a second wave in European nations. At 09:00 BST, the important eurozone data starts to filter in with Germany releasing their first reading of Q2 GDP. Expectations sit at -10.7% YoY for the economic contraction fuelled by lockdown measures, while CPI inflation data is released across Germany’s regions meanwhile. Despite inflation data being released, it will draw little attention from markets due to the data having limited impact on expectations of ECB policy making while the recovery is in a juvenile state. Also at 09:00 BST, the ECB is set to publish its economic bulletin, with confidence indicators due out at 10:00 BST. The data dump comes ahead of the US GDP reading this afternoon. Should the depth of the economic contraction substantially differ between Germany and the US, it will likely drive EURUSD ahead of tomorrow’s eurozone-wide GDP reading.


After selling off further against many major currencies in the wake of last night’s Federal Open Market Committee rate decision and press conference, the dollar has managed to pare back some of its losses this morning. The FOMC decided to keep rates and asset purchases unchanged at last night’s announcement, and made no major changes to their forward guidance, although the duration of the Fed’s enhanced FX swap facilities was extended. Both the statement and Chair Jerome Powell’s press conference placed heavy emphasis on the fact that the US economic outlook depends to a great extent on the path of the virus – an obvious point to make, but one that both Powell and the FOMC saw fit to stress. Powell also acknowledged that the US economy was at very significant risk of slowing down due to the recent pickup in virus cases, and that this was evident in a variety of alternative, high-frequency data that the FOMC was watching. However, it seems that the FOMC was unwilling to act on the signal provided by this data alone. In response to a question about the next tools for easing, Powell identified lending programs, forward guidance, and asset purchases. Given the reality of the second wave of covid-19 infections in the US and its economic cost, the FOMC is unlikely to have the luxury of waiting for much longer before using these tools. Today at 13:30 BST, the advance reading for gross domestic product growth in the second quarter will be released, alongside weekly initial jobless claims. The Q2 number is all but certain to be the worst quarterly peacetime fall in GDP on record, while weekly initial jobless claims will be interesting as they may begin to hint at the renewed shock to the labour market from the second wave of covid-19 infections.


The loonie is struggling to hold on this morning as the dollar bounces back in G10 FX following last night’s Fed meeting. The Canadian dollar is down almost half a percentage point against its US counterpart, falling from its recent highs. The loonie isn’t finding any support from oil prices either as WTI trades back below $41 per barrel. The collapse in the oil rally this morning as trading transitions from Asia to Europe is more a factor of a bounceback in the the US dollar, with gold also falling from recent highs this morning. Yesterday’s data saw US crude inventories fall by 10.6m barrels last week according to the Department of Energy release, the largest drop this year. However, distillates and gasoline inventories continued to rise, tempering optimism as it highlighted concerns about demand conditions yet again. Yesterday, the Canadian Federation of Independent Business released the results of its latest survey, which highlighted that 14% of respondents are at least considering bankruptcy or winding down operations. This would represent about 158,000 businesses in addition to the ones that already closed according to the CFIB, which to their own acknowledgement is a conservative estimate as the businesses surveyed are more established companies, therefore more likely to be able to ride the storm. Today, there is little released for the loonie specifically, but with both initial jobless claims and Q2 GDP reading for the dollar, USDCAD is likely to continue trading off of broad US dollar moves.



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