News & Analysis


The Canadian dollar proved very volatile in Friday’s trading session as traders found it hard to price a combination of negative unemployment figures from Canada and a downwards surprise in the US nonfarm payrolls data. The Canadian labour market posted its first decline in net jobs in December since April, with 62,600 jobs lost in the last month of 2020. The unwind in the labour markets recovery was not only due to the tightening of regional lockdown measures in many provinces, including Ontario, but the early surveying period in November. With Quebec tightening lockdown measures in January also, markets had to price in the likelihood of another poor set of labour market data next month too. However, the pessimism around the loonie was quickly reversed as the 140,000 decline in nonfarm payrolls led to broad USD depreciation across the board. Focus over the weekend remained on Covid-19 developments, this time with regards to vaccinations. Despite Canada pre-ordering the most vaccines per capita, it has only vaccinated 0.7% of the population thus far. This compares to 1.9% in the US and 2.2% in the UK, according to Bloomberg’s vaccine tracker. A number of officials, including Ontario Premier Doug Ford, have spoken out about a diminishing stock of vaccines, leading to a statement by federal Public Services Minister Anita Anand to reassure provincial officials that more vaccines are coming. With the lockdown measures already tight in major provinces, the focus remains on the accessibility of vaccines in determining the longevity of economically damaging containment measures.


The US dollar has started this morning on the front foot as risk sentiment in markets soured over the weekend. News of tighter lockdown measures in parts of Canada, a state of emergency being declared in Tokyo, and new/ extended national lockdowns in the UK and Germany have combined with the slower than expected rollout of vaccinations across major economies, leading to a halt in the risk rally for now. Events over the weekend centered on the ongoings in Washington over the last week, with House Speaker Nancy Pelosi announcing that the Democrats will be seeking unanimous consent in the House of Representatives to urge Vice President Mike Pence to invoke the 25th Amendment, which would declare the President incapable of executing the duties of the office. However, it is unlikely the request will find full support in the House as some Republican representatives object, which would result in impeachment legislation being brought to the floor. The impeachment legislation will likely pass given the dismay by many representatives over the storming of the Capitol and Trump’s involvement in inciting angst at a minimum. This would result in Donald Trump being the first US President to be impeached twice in one term. After which, the legislation will be passed to the Senate, which isn’t set to reconvene until the 19th. With all offices changing hands on the 20th after Joe Biden’s inauguration, the impeachment legislation will then find itself in the hands of a Democrat-held Senate, which could result in criminal charges against Donald Trump. However, with the Senate holding impeachment hearings, it fully blocks out their agenda. This would hamper the progress of Biden’s agenda from being passed swiftly, meaning any additional fiscal stimulus or cabinet nominees would be put on ice for the time being. However, this shouldn’t take away from the fact that both VP Pence remains under severe pressure from a credible threat, meaning he could invoke the 25th amendment despite those closest to him stating that there isn’t much desire to do so at present. With little in the way of economic data today, markets will focus on Fed speaker Bostic at 17:00 GMT, who will discuss his 2021 economic outlook.


The euro is trying to hop on the safe haven train this morning, with the currency trading softer against USD, JPY and CHF while posting gains vs other G10 currencies. The risk off mood may have prevented the euro from weakening at opening while virus headlines from over the weekend and this morning certainly don’t provide any support for the currency. German Chancellor Angela Merkel urged Germans to adhere more closely to the tougher lockdown measures as Covid-19 fatalities surged ahead of what she warned will be the toughest weeks of the pandemic yet, with hospitals being overwhelmed and cases continuing to accelerate. The Netherlands will likely extend its hard lockdown by another three weeks, following the cabinet meeting from Sunday. Prime Minister Mark Rutte will address the nation on Tuesday evening to announce the news. Today’s calendar includes European Central Bank President Christine Lagarde’s first appearance of the year which may give markets clues on the implications for monetary policy. President Lagarde will moderate a panel at 14:40 GMT today, while ECB’s Bostjan Vasle speaks at 10:00 GMT.


Sterling took on some water on opening and tumbled against both the euro and dollar following news the UK may tighten its lockdown restrictions as hospitals are under great pressure from the flood of Covid-19 patients. The UK government is concerned the latest lockdown measures are not being strictly adhered and that the rules may need further tightening to slow down the spread of the new virus variant and avoid a fully overwhelmed NHS. On the other side of Covid-19 policymaking, the UK’s vaccine rollout will accelerate with the opening of seven regional supercentres, but until the main priority groups are vaccinated the surge in case count will put mounting pressure on hospitals. Prime Minister Boris Johnson intends to set up 50 centres as soon as possible, with health secretary Matt Hancock stating the government is on course to meet its target of delivering 2 million vaccinations a week. UK Chief Medical Adviser Chriss Whitty stated this morning that once the vaccine is rolled out in months, the UK will be able to lift some of the restrictions. Today,  health secretary Matt Hancock will unveil the new vaccine delivery plan while GBP will likely also take cues from Bank of England MPC member Silvana Tenreyro who will discuss the potential effectiveness of negative interest rates at the University of West England, Bristol at 14:00 GMT.



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