Morning Report – 19 July 2021

FX Moves


Sterling is little changed this morning as it trades slightly lower along with the rest of the G10 against the dollar despite all lockdown restrictions being lifted in the UK. The positive news is caveated for markets, however, as the rate of new infections continues to soar in the UK, although it isn’t mapping as directly into hospitalisations and deaths as before due to the introduction of vaccines. The rising case count remains a concern, however, as a deteriorating public health backdrop may result in increased caution with new spending and investment decisions. The focus on the UK’s health situation will be increased over the coming fortnight as other major economies look to the UK for guidance on how effective the vaccines are in enabling mass reopening, especially with concerns still rife around the delta variant. This week, the data calendar is typically light for the third week of the working month. Today, BoE policymaker Jonathan Haskel speaks on scarring to the economy at 11:00 BST, while flash purchasing managers indices for July are released with June’s retail sales data on Friday.


The euro opened the week on a stronger note against most currencies this morning as a deterioration in market sentiment following a spike in Covid cases in Asia weighed on commodity-linked currencies like NOK, CAD and AUD and currencies with stronger procyclical features, such as SEK, NZD, while safe haven currencies strengthened against the euro. EURUSD fell to multi-day lows after the US dollar made another push higher on the EU equity cash open as stocks were further hit. The main event of this week will be the European Central Bank monetary policy meeting, which comes after the ECB unveiled its new monetary policy strategy this month. In the new strategy, President Christine Lagarde announced a higher inflation target of a symmetrical 2% from the previous “below but close to 2%”. Lagarde signalled over the weekend that her colleagues at the German Bundesbank unanimously back the strategy, which validates how even the hawkish institution is committed to keeping stimulus elevated throughout the recovery and favours greater flexibility around the new price-stability goal. September is expected to be a bigger meeting in terms of policy changes, however, Thursday’s policy decision and specifically, the communication around it should set the tone of what policy will look like over the summer and how committed the ECB is to maintain its so far dovish approach.


A modest uptick in US Treasury yields boosted the dollar on Friday before a reversal in yields and a downtick in US equity markets started weighing on the currency. This morning, a clear risk-off market mood kept the dollar buoyed as the Delta variant continues to spread globally, with cases mostly surging in Asia and Europe while there has been an uptick in the US as well. As a result, the dollar index climbed to levels not seen since April. US Treasury note futures have breached last week’s high, while oil prices fell after the OPEC+ group reached a deal to increase output. With today’s economic data calendar and central bank calendar being empty for the US, focus returns to broader risk sentiment and virus developments, while markets will keep an eye on headlines around the negotiation of the US infrastructure package in the background after Senator Chuck Schumer indicated on Sunday the group may come to an agreement by Wednesday.


The Canadian dollar’s losses sit in excess of half a percentage point this morning as the decline in crude oil weighs on the petro-currency. Over the weekend, OPEC+ agreed to boost production by 400k barrels a day each month from August until the Covid-induced production cuts are phased out  – roughly around September 2022 given no disruptions. The deal also gives Saudi Arabia, the UAE, Iraq, Kuwait and Russia higher baselines against which the cuts are measured from May 2022, a key concession to bring the UAE back on board such that a near-term production increase can be implemented. The news of a deal being reached over the weekend has resulted in a near 2% fall in WTI this morning, with the North American benchmark trading just above $70 per barrel.  This week, the data calendar is light for the loonie, with most of the action occurring on Friday with the release of May’s retail sales at 13:30 BST.


Source: Monex Europe