CAD
A blank data calendar should keep loonie traders focused on the BoC’s summary of deliberations, released at 17:30 GMT. The big question for many remains whether or not the BoC is done cutting rates, or if there is more easing in the pipeline. Swap markets think so, with two further rate cuts the implied base case. Indications from Governor Macklem have tilted somewhat more hawkish though, in light of potential tariff impacts. If the BoC doubles down on this stance in today’s release, that should offer further upside support for loonie, allowing USDCAD to extend yesterday’s move lower.
USD
After sliding through yesterday morning, the dollar made headway in afternoon trading, leaving the DXY index to finish the day only marginally lower than it started. Today, durable good orders could garner a little more attention than usual, with traders on the lookout for evidence of tariff-related distortions, albeit we still expect the data to be of only marginal impact for the greenback with greater emphasis likely to be placed on speeches from the Fed’s Kashkari and Musalem. The main event occurs on the other side of the Atlantic, however, with a UK mini-budget due. And, given our base case for the Chancellor to underwhelm, we think this could mark the start of a sharp run lower for cable, barring any surprises.
EUR
With nothing of note on the data calendar for today, euro price action should take a back seat. Granted, Villeroy, Knot, and Cipollone are all due to speak, but given the volume of largely uninformative ECB commentary recently, we doubt that this roster is likely to add much more to the debate around an April rate cut. Rather, we expect the main focus for the day to fall on GBPEUR price action. And, similar to our cable expectations, we look for the pair slide as sterling comes under pressure.
GBP
Unsurprisingly, sterling starts the day on the back foot. February CPI data published earlier this morning marginally undershot expectations, landing at 2.8% YoY, 0.2pp below both consensus and January’s reading. That said, we suspect that headlines overnight are just as much responsible for the pound’s early morning fall. These suggested that the OBR has rejected the government’s projected savings from the recently announced reform to disability benefits, leaving the Chancellor scrambling ahead of a mini-budget due later today. While the exact magnitude of the black hole is not yet clear, it now looks all but certain the government will need to make additional cost savings to stay within the Chancellor’s fiscal rules. This, as we have noted previously, is hardly a sterling positive dynamic. Not only will Rachel Reeves need to make further politically unpalatable cuts, but given that she will likely avoid delivering more radical reforms, any headroom remaining is likely to be minimal. That leaves uncertainty heightened, with a very real prospect that the process will need to be repeated come the Autumn. Combined with the knock to sentiment that looks probable as another round of political bloodletting ensues, is likely to depress sterling valuations over the coming weeks, underpinning our call to turn tactically bearish on the pound.
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