The Canadian dollar continues to slide against its US counterpart as US equities print in the red, oil markets continue to slump on news of more strategic reserve drawdowns, and US front-end yields break above 0.6% for the first time since the pandemic. Today, the flash November PMI out of the US may place further pressure on the loonie as stronger economic momentum in the States will only embolden calls by hawkish Fed members to speed up the pace of the taper ahead of December’s meeting.
King dollar is yet to be dethroned as markets take any bullish USD story they can get in the current trading environment. While markets widely expected President Joe Biden to pick Jerome Powell as the next Federal Reserve Chairman again, markets took the official announcement as bullish for the dollar given the Fed would likely operate under more hawkish policy in Powell’s presence as chair than it would when Lael Brainard had been chosen. Biden stated he had chosen not to replace Powel with the more liberal Brainard as the Fed needs stability and independence as it moves out of pandemic policies. Atlanta Fed Chief Raphael Bostic spoke soon after Powell’s nomination and stated speeding up the removal of QE would give the FOMC “more optionality” to manoeuvre in 2022, which spurred market bets on tighter policy. Markets are now pricing in almost three 25bp increases by December 2022 compared to a total of 60bps earlier this month. After PMIs are released from the eurozone and UK, markets turn to US PMIs at 14:45 BST for further cues on economic sentiment.
The one-way traffic for the euro extended into this morning as lockdown drama and hawkish Fed pricing continue to weigh on the single currency. Weekly bond-buying through the Pandemic Emergency Purchase Programme (PEPP) by the European Central Bank was elevated in the last couple of weeks, reflecting the grim situation. Nevertheless, ECB Governing Council member Francois Villeroy de Galhau still stated yesterday the ECB may not need to expand regular asset purchases to cover the shortfall when PEPP ends in March, as the central bank is serious about ending its emergency bond-buying programme. This morning’s Purchasing Managers’ Indices which are released between 08:15 and 09:00 BST were expected to be reflective of the worsening Covid conditions, however, at the time of writing the French PMIs have already been released and printed significantly higher than the median of forecasts submitted to Bloomberg suggested while they also printed above prior readings. While this could be an indicator that the overall PMIs in the eurozone won’t be as bad as the consensus suggests, the eurozone print could still be weighed down by countries where measures have been tightened more so than in France.
The pound remained under substantial pressure in yesterday’s session with euro dynamics weighing on sterling as traders refrained from GBPEUR breaking out. This morning, with question marks over the current government following Boris Johnson’s communication blunder at the CBI annual conference, the pound remains under the pump as the dollar rises broadly across the board. This morning, sterling may find some relief in November’s flash PMIs released at 09:30 GMT should activity hold up better than expected, especially as Covid concerns continue to linger and pressure economic activity. While there are no signs that the UK will tighten containment measures ahead of the Christmas period, the recent rise in cases in Europe remains a concern and weighs on sentiment, especially as Germany and France share similar vaccination rates to the UK.