Increasing Risk Keeps A Lid On Volatility

Ongoing US-China trade concerns and jitters over the UK's political landscape keep a lid on volatility ahead of today's BoC rate decision.

Previous Day's Market Highlights

Markets started a holiday-shortened week in a relatively sluggish manner on Tuesday, with most major FX pairings remaining well anchored within recent trading ranges and volatility muted. The dollar remained well supported, with demand stemming from increased appetite for safe-haven assets in addition to better than expected consumer confidence figures. While markets remain on edge in light of US-China trade tensions, the dispute seems to be having little effect on the US consumer, with confidence increasing to its highest levels since November 2018, an index level of 134.1. Increased consumer confidence is a positive sign for the US economy, with upbeat sentiment set to boost consumer spending, thus aiding economic growth over the coming quarters. However, the impact of escalating trade tensions, and the additional expense that tariffs will cause the US consumer, remain difficult to judge and shroud the outlook in uncertainty. Over the course of the day, the dollar added 0.25% against a basket of peers, edging back towards a 2-year high. 
 
Elsewhere, the pound’s performance was mixed, with markets remaining jittery over an ever-increasing field of candidates vying for the Conservative Party leadership. The pound shed 0.2% against the dollar, though added just over 0.1% against the euro, over the course of the day. However, any rallies are set to remain well-capped by the ongoing political uncertainty. Meanwhile, the euro was weighed down by a mixed set of sentiment figures. Data showed business confidence falling to the lowest level since August 2018, while consumer confidence increased, as forecast, to the highest level since October 2018. Markets were more concerned with the former data point, which sent the single currency 0.25% lower over the course of the day. Risk aversion was also in evidence on Tuesday, with the yen gaining 0.25%, and 10-year Treasury yields hitting a 20-month low - a sign of increasing demand for bonds with yields moving inversely to price. Overnight speeches from BoJ Governor Kuroda and RBNZ Governor Orr also gave little for markets to chew over, with neither providing fresh information on the monetary policy outlook. 
 
Away from FX, equity markets declined as continued fears of a prolonged US-China trade war pressured major indices. In Europe, the pan-continental Stoxx 500 lost 0.2%, while the US benchmark S&P 500 shed 0.85%, closing clost to intraday lows. Finally, oil prices were mixed, with trade concerns weighing despite tightening supply. Benchmark Brent fell 0.55%, while US WTI crude rallied by 0.4%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1340 1.1776 1.1298 4.06%
GBP/USD 1.2655 1.3176 1.2605 4.33%
EUR/USD 1.1160 1.1263 1.1107 1.39%
GBP/AUD 1.8285 1.8882 1.8250 3.35%
GBP/NZD 1.9360 2.0021 1.9306 3.57%
GBP/CAD 1.7085 1.7728 1.6902 4.66%

Today's Market Highlights

Today’s main highlight will be this afternoon’s interest rate decision from the Bank of Canada, though the meeting may be a bit of a non-event. Markets expect no change to interest rates, though will be closely watching the BoC’s comments relating to the monetary policy outlook after shedding their tightening bias last month. Also of interest will be the BoC’s assessment of Canadian economic performance, with the monetary policy statement likely to confirm the Canadian economy is evolving in line with expectations. Looking ahead, the BoC seem to have little reason to tighten policy further, with accommodative policy supporting economic expansion, along with a lack of domestic inflationary pressures suggesting unchanged policy for the remainder of the year. 
 
Elsewhere, focus will remain on the US-China trade, in addition to the Conservative Party leadership contest, which should both continue to dampen risk appetite. No economic data is due from the UK today, while from the US markets markets will glance over the typically low-impact manufacturing survey from the Richmond Federal Reserve. Meanwhile, data is also relatively light from the eurozone, with only this morning’s German employment figures of note. The ECB will also release their biannual Financial Stability Review, though this will not have an impact on FX markets or monetary policy. Other focuses today include this morning’s monthly Swiss economic barometer, a useful leading indicator of economic health, along with the overnight release of building permits data from New Zealand. 
 
Finally, central bank speakers are also relatively thin on the ground, with just the ECB’s Mersch and Bundesbank’s Weidmann due. Markets are likely to pay attention to the latter, with Weidmann rumoured to be one of the frontrunners to replace ECB President Draghi later this year. 

Today's Economic Calendar

Time Currency Release Consensus Previous
3:00pm CAD Bank of Canada Rate Decision 1.75% 1.75%
3:00pm CAD Bank of Canada Rate Statement
11:45pm NZD Building Permits (m/m - Apr) 1.3% -6.9%