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CAD
Yesterday’s session was relatively muted for CAD despite the occurrence of the Bank of Canada policy meeting, as the lack of change to the Bank’s October projections in the statement balanced out with increased sensitivity to the current inflationary backdrop. This, in our view, confirms the current market pricing of a rate hike in the first half of 2022, should the current risks to the near-term growth outlook abate by Q1. For today, the emphasis is on Deputy Gravelle’s economic assessment for further guidance on the economic outlook at 18:00 GMT, especially as yesterday’s meeting came without a press conference.
USD
The US dollar weakened in yesterday’s session as news headlines failed to keep risk sentiment from improving, while Treasury yields fell across the curve, but moves reversed this morning amid profit-taking and new headlines around the omicron variant. A study by a Japanese scientist who advises Japan’s health ministry found that the new variant is 4.2 times more transmissible in its early stage compared to the delta variant. On the US calendar today will be jobless claims data, which oftentimes has little market impact. Therefore, the dollar is likely to be driven by global factors today ahead of tomorrow’s CPI report and next week’s Fed meeting.
EUR
EURUSD saw the largest daily increase in over a week yesterday as the greenback lost steam, but the pair trimmed gains this morning amid possible profit-taking and headlines indicating omicron is four times more transmissible than the delta variant. Commentary from ECB members yesterday sought to reverse comments made by Governing Council member Robert Holzmann earlier in the week that the QE and rates could become decoupled. Yesterday, Executive Board member Isabel Schnabel stated that “reversing the communicated order of instrument sequencing is not an appropriate policy response”, while comments from Governing Council member Martins Kaxaks stated that it is too early to be able to accurately assess the impact the variant will have on the economy. Comments from ECB members come ahead of next Thursday’s rate decision. Lagarde is expected to finish off the ECB’s commentary tomorrow before policymakers enter a blackout period, where the President is expected to speak alongside colleagues Weidmann and Villeroy on a panel for the Bank of International Settlements.
GBP
After reaching fresh one-year lows against the dollar yesterday, the pound retraced a large chunk of its losses in the afternoon session as the dollar went broadly offered. However, despite the weakness in the greenback towards the back end of the European session, the pound struggled to completely reverse losses over the course of the day. Sentiment around the pound continues to be pinned down by the tightening of restrictions and the overall health backdrop, however, we argue that sterling downside is stretched given the new restrictions will only weigh on growth at the margin while expectations for the Bank of England to hike in December have already been nullified. Today, focus will remain on UK politics with the Prime Minister receiving heavy backlash for his decision to tighten measures and rumours of a Downing Street party last Christmas. This comes ahead of tomorrow’s October GDP report at 07:00 GMT.