The Currency Market is Heading into a Significant Week in the US and UK

. 3 min read

Overview:

  • The Greenback is trading flat ahead of FOMC and employment data
  • The British Pound waits on a signal from the Bank of England and tedious Brexit negotiations
  • WTI crude oil continues its southbound move, losing 0.75% this morning

Highlight:

The British Pound is set to close the month in negative territory for the second month in a row. There is no progress on ongoing Brexit negotiations. Market and business remain plagued by uncertainties as we are quickly approaching the EU's election season. The Bank of England is likely to keep rates unchanged this week and leaving the door for a more accommodative policy. GBP/USD is expected to attract volatility with a bias to the downside ahead of the critical event risk.

US DOLLAR

The US dollar moved back into positive territory this morning following the release of personal income and spending data. Wages and salaries, the largest component of personal income, rose by 0.4% in March following an increase of 0.3% in February.

The DXY Index is expected to hover around current levels as FOMC prepares to meet for its policy meeting midweek. We also expect cautious moves in the currency market ahead of Friday’s non-farm payroll data.

Investors will also keenly watch for the PMI (manufacturing and non-manufacturing) out of China later today. Meanwhile, oil futures on NYMEX continue to sag lower (after slumping 4.25% on Friday) and could exert pressure on commodity-linked currencies like the Canadian dollar over the coming sessions.

BRITISH POUND

The British Pound is trading flat this morning, fetching the lower ends of 1.29. We expect the market to trade prudently ahead of central banks meeting this week, with focus on the tone of accompanying statements. Both the US Fed and the Bank of England are expected to maintain policy rates unchanged. Brexit negotiations are not going anywhere fast and cast dark clouds over the economic outlook.

EURO

The Euro is holding onto its small gains around the mid-point of 1.11. The US dollar came under pressure Friday despite a better than expected GDP reading. The recent rally in the EUR/USD could fizzle out very quickly with substantial duty numbers due for release this week. The Eurozone economy has come to a stall as PMI and inflation readings will dictate the pace and direction over the coming days.

CANADIAN DOLLAR

USD/CAD continues its consolidation theme, below the 1.35 psychological mark. There is no data of out of Canada today. The pair is expected to attract volatility tomorrow with BoC Governor Poloz due to deliver a careful assessment of the economy in his testimony before the Standing Committee in Ottawa. Lower WTI prices may also weigh on the outlook of the loonie.

AUSTRALIAN DOLLAR

AUD USD is holding bearish around .7068, and there are no major releases from the BoA over the next few days, which is likely welcome relief after last week's disappointing news which saw the Aussie sink by 1.5 percent.

FEATURED CURRENCY

Dollar-yen is approaching the 112 handle following the pullback of last Friday. The PCE price index rose by 0.2% in March from February. The pair is expected to trade at current levels ahead of key announcements from the US Fed and on US job data (Friday).

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