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Month end rebalancing moves drive currency markets

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4 May 2021

Written by
Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.

As is often the case at month end, portfolio rebalancing by asset managers brought a lot of random volatility to currency markets last week.

he Canadian dollar topped the G10 weekly rankings, while Latin American currencies were to be found both at the top and the bottom. The April meeting of the Federal Reserve reaffirmed an extremely dovish monetary policy outlook, and bond yields reprised their march upwards on the back of strong US economic data, while evidence of inflationary pressures continues to mount.

This holiday-shortened week will be light on news. The Bank of England meets Thursday will probably do little more than acknowledge the stronger than expected growth. MOre attention will be paid to the narrowing gap in vaccination rates between the US and the Eurozone, which could put upward pressure on the Euro.


There was no first-tier data released in the UK last week, so Sterling traded more or less tick by tick with the Euro against other world currencies. Thursday however promises to be a volatile day for Sterling. The Bank of England is not expected to announce any changes to monetary policy settings, but it will be interesting to gauge the MPC’s reaction to recent strong data. Then later on we will see the results of the Scottish parliamentary elections, which will likely bring another pro-independence majority and potentially adding some political risk to the pound.


GDP growth for the first quarter of 2021 and inflation for the month of April both came out roughly as expected. The former showed a contraction of 3.2% on an annualized basis, but it is backward looking and was roundly ignored as markets focus on the far more promising forward indicators. The latter also showed a strong increase in the headline inflation numbers on the back of energy costs but a more subdued core, dragged down by the remaining COVID restrictions. As in the UK, there is little news of note on tap this week. Instead, the focus should be on progress in the disbursement of the Recovery and Resilience facility funds.


The Federal Reserve stuck to its dovish guns at the April meeting, promising again to see through economic strength and inflationary pressures and keep monetary policy extremely stimulative. The first quarter GDP report was much stronger than expected, increasing at a 6.1% annualized rate in spite of an inventory drawdown, which bodes well for the future. On the negative side for the US dollar, imports continue to far outpace exports, and most indicators of price pressures continue to come in above expectations that have already been revised upward.