The loonie continues to find itself under pressure from broad US dollar strength despite oil prices rebounding in this morning’s session. While the loonie weakens this morning, it is notably one of the better performing G10 currencies with even JPY and CHF falling victim to the US dollar. Yesterday, Bank of Canada Deputy Paul Beaudry said policymakers need to consider the potential longer-term costs of rising debt levels when making decaisions about cutting interest rates, leading to OIS markets trimming expectations of a rate cut in March at the margin. Today, November’s GDP reading is released at 13:30 GMT with economic activity data in scope for market participants after the Bank of Canada’s growth downgrade for Q4.
The dollar had a mixed session yesterday, posting substantial losses against haven currencies and the pound while exacting a pound of flesh from commodity-linked G10 currencies. The formal announcement by the World Health Organisation that coronavirus is now a global health emergency will likely support haven currencies in the short-run, while the US raised its China travel advisory to the highest level, urging citizens to avoid the country. In the impeachment trial, Republican Senate leader Mitch McConnell probably has the votes to block witnesses in the impeachment case, meaning it is likely that the trial will wrap up today with the President receiving an acquittal. On the data front, the Fed’s preferred inflation measure is released at 13:30 GMT with the PCE measure expected to rise to 1.6% YoY.
The euro gathered itself yesterday after touching fresh lows against the dollar on Wednesday. Recent euro weakness can be attributed to the risk-off mood in markets due to the coronavirus along with poor economic data. German unemployment and inflation data supported the euro in gradually gaining back its strength in yesterday’s session, while today the euro does not fare as well with bleak German retail sales highlighting a 3.3% MoM fall in December and French GDP shrinking 0.1% in Q4. Nevertheless, economic confidence in the eurozone has been rising since October and is measured at levels not seen since August, which comes in line with European Central Bank President Christine Lagarde’s comments last week on the stabilizing eurozone economy. Further data is released today in the form of the Eurozone CPI estimate for January at 10:00 GMT, which is released alongside the advanced reading of Q4 GDP.
Sterling was one of the standout performers in yesterday’s session along with haven currencies such as CHF and JPY. The catalyst for the pound’s strength wasn’t risk-off sentiment, however, but a decision to hold rates by the Bank of England. Questionably, the pound moved some 0.23% just 15 seconds prior to the official announcement of the rates with the FCA now investigating the move after the Bank of England was found to have had an audio leak just two-months ago which allowed hedge fund’s early access to the content at a fee. The 7-2 decision to hold rates showed the bank was firmly supportive of sitting behind the curve. Governor Carney stated in his last meeting at the helm of the bank that the preliminary data post-election looked positive, but whether the boost in sentiment would pass through to all sub-sectors of the economy and have longevity will be closely monitored by the bank. All-in-all, the meeting was supportive of a sterling rally as options markets moved out their rate cut call to price in a 50% probability of a rate cut in May. In other news, after 47-years as a member of the European Economic Community, which was later engulfed by the formation of the EU, the UK is set to leave at 23:00 GMT tonight. However, with the transition period in place until the end of the year, tonight’s exit means very little for the UK economy and financial markets.