CAD
USDCAD continued its seemingly inexorable grind lower yesterday, breaking below 1.40 overnight. This is despite the loonie’s typical sensitives to oil and equities both offering headwinds. Instead, market concerns over US credibility are seeing gains across the board versus the dollar, albeit, we do think it is still notable that USDCAD has delivered a middle-of-the-pack performance post-Liberation Day when compared to other G10 FX. Given the Canadian economy’s sensitivity to US conditions, we would expect greater underperformance, and that poses downside risks to the loonie on crosses looking ahead.
USD
Another remarkable day of FX price action saw some key levels tested and broken. From a dollar perspective, the DXY index slipped below 100 overnight, plumbing depths last in April 2022. Accompanied by falls for both equities and Treasuries, this is an unenviable mix – an ugly trinity of cross-asset moves playing out as traders increasingly shun US assets. Naturally, this has begun to raise questions about the death of US haven status. After all, these dynamics are more commonly seen in emerging markets, or perhaps more pertinently, the UK during the Liz Truss budget debacle. In short, the a
Moreover, it is not obvious that there is a clear path to calm market nerves. There is no mechanism to defenestrate a President in the same way that the UK dispensed with Truss, while it looks unlikely at present that either Congress or Fed Chair Powell will ride to the rescue. But equally, US fundamentals remain solid, even considering the knock to sentiment, while the eurozone is hardly a perfect safe haven alternative. That leaves markets at a crossroads and facing elevated uncertainty. We continue to favour a reversion to prior norms on balance, albeit likely accompanied by some scarring, though our conviction in this call is now much lower than it was just a few weeks ago.
EUR
Yesterday’s EURUSD rally was, by our calculations, the 11th largest daily rise since the introduction of the single currency, and the largest gain in almost a decade. And the euro has made further headway this morning too, breaking above 1.13 overnight and continuing to make headway. Given the upside momentum behind the pair, we are wary of suggesting that a retracement is imminent. There is no top-tier data on the horizon to shift the narrative, while the only commentary of meaningful significance that could disrupt this trend is likely to come from the White House. So, while the current run higher for the single currency is looking increasingly stretched in our view, we would not be surprised if EURUSD delivers further gains ahead of the weekend.
GBP
While Trump tariffs remain the primary market story, two pieces of UK-specific data published this morning should not be overlooked either. First, the REC report on jobs, published just after midnight, points to a solid labour market and rising wages. Second, February GDP figures beat all expectations to show the UK economy expanding 0.5% MoM, belying the doom and gloom that has haunted economic sentiment. This also leaves sterling looking distinctly undervalued when compared against current euro valuations. Better growth, higher rates, and relatively greater insulation from tariff risks are all factors that should favour GBPEUR upside. Instead, the cross has lost -3.5% month-to-date, a move that we think is due an unwind.
This content was originally published by our partners at Monex Canada.