CAD
While the loonie has a quiet start to the week on the data front, tariff headlines have continued to ensure further downward pressure on USDCAD. That said, domestic conditions should get more of a look in as the week progresses, with March CPI data due tomorrow, followed by a BoC decision on Wednesday. We doubt either will do much to disrupt the current downtrend for the pair. Consensus expectations see a further marginal rebound in CPI growth in March, while Canada’s exemption from recent US tariff levies leaves the BoC free to focus on domestic conditions. Put this together, and a hold in rates looks likely this week, a more hawkish outcome than priced by swaps, which still see a 33% chance of a rate cut come Wednesday.
USD
If last week wasn’t busy enough, the roster of events coming up this week promises another rollercoaster ride for FX markets. Rate decisions from the ECB and BoC, accompanied by CPI readings from Canada, the UK, New Zealand, and Japan; not to mention US retail sales, would be plenty to be getting on with under normal conditions. However, all this takes place amid continued tariff uncertainty, which remains front of mind this morning, with Trump suspending tariffs on electronic goods from China over the weekend. As of writing, it appears that this is likely to be temporary, with sectoral levies rumoured to be due later this week. But the uncertainty generated over the weekend as members of the administration took to the airwaves to contradict each other, has done little to assuage market sentiment that has taken an increasingly dim view of US tariff policy. That leaves uncertainty heightened, and dollar risks skewed to the downside, at least in the short term. The DXY index has already dropped 0.7% through early trading and looks likely to continue trading lower, unless and until the uncertainty begins to crystalise meaningfully, or something significant breaks – triggering haven flows back into the US.
EUR
The euro is once again benefiting from a dollar retreat this morning. The single currency is trading just shy of last week’s high versus the greenback, and looks more than fair odds to retest those levels again in the near term. Admittedly, ZEW survey data published tomorrow is likely to prove a speedbump, with consensus expectations still too optimistic in our eyes. Similarly, we suspect that the ECB will be more dovish than anticipated later this week, considering recent FX price action that does much to alleviate upside inflation risks for the bloc. This should help take some of the wind out of the euro’s sails, as the week progresses. So, while further marginal gains against the dollar look more likely than not, we also expect to see the single currency give up some ground on crosses.
GBP
After sliding sharply following Liberation Day, GBPEUR stabilised toward the back end of last week, with the pound now starting to eke out some marginal gains versus the euro. Indeed, the cross is currently trading close to 1% higher than the lows of last Friday, headed in a direction that we continue to see as better reflective of fundamentals. This week, labour market data, and CPI top the docket for the UK – we expect both to build on last week’s GDP print, highlighting the UK fundamentals remain solid, despite grim sentiment readings, helping to sustain a sterling rebound through the course of the week.
This content was originally published by our partners at Monex Canada.