CAD
A blank data calendar and a similarly barren docket of speakers should keep the loonie trading in limbo for the time being. Tariff risks remain the key risk on the horizon for CAD traders. But with the news cycle dominated by revelations that several senior Administration figures discussed sensitive information on a Signal chat, one which was then leaked, trade policy is unlikely to become a major topic in the next few days. In short, that should ensure that USDCAD sees a reprieve in the short term albeit with the April 2nd tariff deadline fast approaching, we still expect that pair to trade rally sooner rather than later.
USD
After a rough few weeks for the dollar, recent days have seen something of a turnaround, with this pattern continuing yesterday, seeing the DXY index rise 0.25pp. This latest rally was largely underpinned by a set of PMI releases that marginally undershot expectations in Europe, while US figures delivered a barnstorming set of readings. Indeed, the composite US print climbed to 53.5, up from 51.6 the month prior and well above expectations for a fall to 50.9. This put a huge dent in the recent growth slowdown narrative that has weighed on the dollar, albeit in line with our thesis that recent worries around the condition of the US economy were likely overstated. That should see little challenge today too, with neither house price data, confidence indicators, or speeches from the Fed’s Kugler and Williams likely to rock to the boat from a greenback perspective.
EUR
While yesterday morning’s PMI numbers broadly matched expectations, markets were still left underwhelmed given beats elsewhere. This saw EURUSD sink below 1.08, while GBPEUR rose to within touching distance of 1.20. Moreover, given yesterday’s readings, we now see greater reason for caution around today’s IFO survey readings. Head of yesterday’s data, our thesis had been that the announcement of increased fiscal spending in the bloc would translate into a boost to business confidence. Granted, that could just be a peculiarity of the PMI readings. But if the same pattern emerges across today’s readings too, that is not a good sign for the eurozone. Accordingly, we see risks skewed to the downside for EURUSD today. While a beat is unlikely to do much to boost optimism, an undershoot should add to the growing pile of evidence that eurozone fiscal stimulus efforts are ultimately set to underwhelm.
GBP
With no data or speakers of note scheduled for today, sterling traders will be focused on events ahead, and on that score, tomorrow’s Spring Economic update is the key risk event on the horizon. That said, we suspect this will be a mini-budget in all but name. Given a rise in borrowing costs since October, combined with a slump in GDP growth, it looks highly likely that the Chancellor is set to breech her fiscal targets. If she does, this will require tweaks one way or another, either to the borrowing rules, or to tax and spending. Regardless of the approach the Chancellor chooses, some are likely to be left unhappy, with vocal displeasure all but certain to be the mood music through the second half of the week. And, if the fallout from October’s budget is a reliable steer, this should offer a short-term drag for sterling. As we noted at the time, the budget was expansionary and should have boosted growth and sterling at the margin. Instead, public disquiet translated into a slump in consumer confidence, seeing growth flatline and weighing on the pound. With that experience still large in the rear-view mirror, and few signs that the Chancellor will change tack, we remain tactically bearish on the pound ahead of tomorrow’s big event
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