There are two major currencies that have been one-way streets lower so far this year, namely the yen and also sterling. The Canadian dollar at least got a break yesterday, the first day of appreciation vs. the US dollar in 13 trading sessions, down by more than 4% so far this year, as the Bank of Canada kept rates on hold. The central bank was relatively upbeat on the economy, all things considered, which allowed short-dated bond yields to rise on the reduced prospect of easing later this year. But many in the market do not share the Bank of Canada’s optimism, especially as the oil price continues to travel south. Sterling is interesting because it’s not been an interest rate story so far this year, with the weakness of the currency more coming from the lack of safe haven properties, with a sizable current account deficit (to GDP) and a potential referendum on EU membership later this year. The overnight tone to equities has remained fragile, as has been the case with oil, Brent now comfortably trading with a 2 handle. Elsewhere, the yen has firmed on the back of comments from the BoJ undermining expectations of further near-term quantitative easing.
The main focus today will be with the ECB meeting result at 12:45 GMT, with the press conference following at 13:30 GMT. There are no expectations of further policy action, but naturally the euro will be sensitive to hints of easing measures given the recent volatility in financial markets and weakness of the oil price. The latter will mean that the ECB will likely see its projections for headline inflation for this year revised down at some point. The single currency itself has been holding up relatively well so far this year, largely because the dollar has corrected on the back of reduced expectations of Fed tightening and currencies are a relative game, so the euro is looking one of the least bad to be in.