Daily Currency Update

Will Powell Address Treasury Market Sell-off?

USD: Bond markets continues to remain front and center in both the global investment environment and FX markets. This week had seen sentiment improve when Fed’s Lael Brainard said the Treasury sell-off had ‘caught her eye’.  This brings us to the main event today, which is a Q&A between Fed Chair Jerome Powell and the Wall Street Journal. This will be the last chance to hear from the Fed before it enters the two-week blackout period this weekend ahead of the 17 March FOMC meeting. The tone of this Q&A could well set the risk tone for the next two weeks. Comments that he’s monitoring events in the Treasury market might be enough to calm things down and a softer dollar.  However, should Powell not directly address the current environment, most will assume that the Fed is happy for US Treasury yields to ‘find the right level’– potentially triggering another spike in US yields and more dollar short-covering.

CAD: The CAD is marginally firmer against the USD, with a pro-risk market mood and rising crude prices helping drive gains. Most expect the CAD to remain well-supported in the short run but today’s OPEC+ meeting is a clear risk for elevated crude prices and therefore the CAD.

EUR: Financial markets like numbers and expect to hear more about the German new virus case rate per 100,000 people. In announcing a path out of lockdown, Chancellor Angela Merkel’s plan heavily relies on the new case rate falling below 50 per 100,000 people. This number stood at 64 yesterday. News also that vaccine logistics should improve in early April continue to support the view of 2Q being the break-out quarter for European growth and suggests any EUR/USD foray under 1.20 is short-lived.

GBP: Yesterday’s UK budget was seen to strike the right balance and support the spring recovery. Gilts sold off on the larger than expected supply plans, yet most assume that the the re-assessment of UK growth prospects can support GBP.