News & analysis

CAD

The loonie dropped against the dollar over the course of yesterday as equity futures fell with riskier assets regaining demand. With the dollar remaining on the back foot ahead of the FOMC policy announcement, the Canadian dollar managed to regain some of its lost territory this morning despite revived oversupply concerns in the oil market which caused WTI to drop back towards $37/b. Canada’s economic calendar contains no major releases for the rest of the week, leaving the currency at the mercy of further developments in crude oil markets and risk sentiment.

USD

The dollar was trading with a mixed tone against the major currencies throughout the day yesterday, rising against commodity currencies while declining versus the safe havens as the two-day FOMC policy meeting started. This morning, the gauge of the dollar dropped to a three-month low ahead of the Fed announcement. The Federal Reserve is unlikely to trigger any policy moves at today’s meeting and is expected to set a transitioning tone from restoring market and liquidity stability to a more traditional policy approach where financial conditions are boosted to speed up economic recovery. A survey to economists provided by Bloomberg estimates that the FOMC is likely to project that it will raise rates in 2022 only. While expectations remain low for today’s announcement which is scheduled at 19:00 BST, the meeting will be key in price action across the G10 currency board today.

EUR

The euro extended its rally against the dollar in the second half of the day yesterday as the USD sell-off continued ahead of the Federal Open Market Committee’s announcement. Earlier in the day, Eurostat data indicated a contraction of the eurozone economy of 3.6% quarter-on-quarter which was slightly better than the forecasted decline of 3.8% but did not seem to impress the currency. EU member states urged Brussels to take into account the shock of a hard Brexit which would add to the ongoing woes of the pandemic as the prospect of a no-deal Brexit has come into view following dead-end trade talks. German Finance Minister Olaf Scholz commented on the EU’s 750 bn coronavirus recovery package and stated that “although there remain differences between various nations that are not small, I have the impression that everyone has the will to reach an agreement within a short time”. This morning, the euro continued to trade on the front foot against both the dollar and the pound after comments from the ECB’s Governing Council member Madis Müller who stated that increasing the Pandemic QE programme is not necessary. Today’s economic calendar included a larger than expected contraction in French manufacturing production of 21.9%, while French industrial production shrank by 20.1% month-on-month. While this may have briefly shooked the euro, the currency remains at the mercy of today’s FOMC decision and further developments in risk sentiment.

GBP

Sterling’s price action over the course of yesterday was primarily dominated by the continued risk-on market mood following the easing of lockdown measures and improved Covid-related reports in the UK. This morning, the pound continued to strengthen against the dollar in the buildup to the Federal Reserve public announcement while also rallying against the euro as UK Prime Minister Boris Johnson will announce details on which businesses will reopen in the first stages of the lockdown easing after officials reported the lowest number of daily coronavirus-related deaths since restrictions were imposed. With no major economic data releases on today’s slate, sterling continues to take its cues from the prevailing risk environment and any updates on trade talks.