Sterling bewilderingly joined the traditional haven currencies yesterday in rallying against the dollar in a session where the greenback began to show some resilience. Estate agent Foxtons claimed the UK property market has recovered sharply, reporting lettings close to pre-crisis levels and sales up in April and May. Data from elsewhere in the UK property market has been decidedly mixed; the latest official House Price Index data from March showed a 2.1% year on year increase, while the Royal Institute of Chartered Surveyors reported a net balance of -15% of respondents observing price increases. Price indices from Halifax and Nationwide both showed modest monthly declines in their latest vintages. However, with rising unemployment likely to weigh on household incomes the full effects of the pandemic may yet to be felt in the housing market. Today at 09:30 BST money and credit data will be released by the Bank of England.
EURUSD was trading a little below its 2-year high yesterday ahead of today’s Federal Reserve monetary policy announcement, as markets adopted a more cautious approach towards the dollar and the Fed due to the numerous negative risks attached to the US economic outlook. These broadly consist of the resurgence in virus cases, US-China tensions, US fiscal wrangling and a more protracted economic recovery. However, markets seemingly shrugged these fears off today ahead of tonight’s FOMC meeting as the dollar is sold widely across FX markets, pushing the euro back up to a two-year high. European Central Bank Governing Council member Yannis Stournaras said on Wednesday that the risks to the eurozone economic growth are tilted to the downside as well, and stated that the ECB would fully exhaust the Pandemic Emergency Purchase Programme (PEPP) and might extend some of the current measures depending on the inflation outlook and recovery timeline. The cautious comments are likely to be of smaller relevance in the context of the key Fed outcome today and aren’t blunting the euro’s performance this morning. Normally such dovish comments would be more likely to cause currency weakness, but in the current environment it seems this is either outweighed by negative sentiment on the dollar, or taken as a positive due to additional economic support measures being welcome.
The US dollar has barely managed to scrape itself up off the floor over the past 24 hours, having reached fresh lows of varying durations against many major currencies, and when measured broadly by indices such as DXY. Some of the more significant price action this morning was against the euro and sterling, both of which began making progress again after slightly paring back their gains yesterday. Yesterday’s data included the Richmond Fed’s manufacturing index, which rose into positive territory, and the Conference Board’s consumer confidence survey, which showed a continued deterioration. The Federal Reserve also announced an extension in the duration of seven lending facilities scheduled to expire in September, including the Primary and Secondary Market Corporate Credit Facilities and the Main Street Lending Program. The Federal Open Market Committee will announce its latest policy decisions today at 19:00, followed half an hour later by a press conference. At first glance, it would seem that no major policy action in the form of asset purchases or rate cuts is likely, due to a lack of recent commentary from Fed officials and a lack of hard traditional economic data indicating a further substantial deterioration in the economic outlook. However, the reality of the second wave of covid-19 infection in the US, and measures taken by many states to combat it, means that the economic outlook has deteriorated, even if official data have yet to confirm it. The possibility of aggressive action from the FOMC cannot be ruled out tonight. Short of asset purchases or negative interest rates, the FOMC may consider enhancing its forward guidance or implementing direct control of the US sovereign yield curve. The former measure is the more likely, and was extensively discussed at the last meeting, and the latter less so given the lack of projections tonight and the Fed’s ongoing strategy review.
The loonie continues to look at how markets are trading generally to take its cues, with this morning’s signal pointing towards fresh USD weakness across the G10. The loonie is up 0.19% this morning against the dollar, following the likes of EUR and NOK, while oil markets have bounced back to $41.20 ahead of this afternoon’s DoE crude inventory release. A Bloomberg survey on Tuesday showed that US inventories grew by 450,000 barrels last week, conflicting with the American Petroleum Institutes reading which reported a 6.83m barrel drop in stockpiles. The API release tends to have less market impact than the DoE reading, but the noisy data series tends to be a good indicator of the market-moving DoE release. Demand conditions continue to drive oil markets with fears of a more protracted US lockdown weighing on sentiment. The only notable data from Canada yesterday comes in the form of alternative data, a growing theme due to its timeliness of gauging the economic state after the effects of lockdown. Indeed Canada, a job posting website, reported total postings were down 30% YoY last week while new postings were down 13%, both an improvement from the week prior where readings sat at 31% and 17% respectively. While this improvement is positive for the Canadian labour market, Brendon Bernard, economist at Indeed Canada, rightly stated that all eyes are peeled for signs of the recovery plateauing. Today, focus for USDCAD will be on the DoE inventory release at 15:30BST ahead of tonight’s Federal Reserve meeting.