News & Analysis


Thin liquidity conditions over the festive period have allowed sterling to trade higher at the margin, rising some 80 pips over the course of the week. The latest Brexit related story comes from the Times, which reports the EU will threaten to block the City of London’s access to the single market. The threat comes in order to put leverage on Johnson’s demands and keep UK negotiators aligned with the tight trade timetable before the 2020 deadline. This would be detrimental to the financial services sector and kick much of the sectors backup plans into action as passporting rights are threatened. 


The single currency is taking advantage of the broadly softer dollar, rallying 0.3% on the day. With no economic data due for the remainder of the year, apart from the final reading of Spain’s Q3 GDP reading on the 30th, the euro will likely sit below its month high against the dollar to close out the year. The only notable news story is that a Financial Times poll of economists’ forecasts the eurozone economy will slow in 2020 for the third consecutive year. Growth is expected to be held back by political instability, trade tensions and disruption in the auto industry. 


The dollar has drifted broadly lower against G10 companions over the course of the week, but the move has less impact with many market participants away from their desk. The New York Fed’s liquidity injections via repo auctions were unsubscribed, suggesting the liquidity crunch in US money markets may be coming to an end just as the federal bank begins to step up its provisions as year-end rebalancing draws closer. The NY Fed embarked on liquidity injections in order to regain control of short-term interest rates after the dollar became a scarce resource in money markets due to month-end flows and increased Treasury issuance back in September. This may have blunted the greenback’s strength in FX markets over the festive period, although we suggest not reading too much into the latest FX moves due to thin market liquidity conditions. 


The loonie is 0.5% higher compared to where it started on Christmas day. Over the course of the week, USDCAD is 0.4% lower with the loonie’s strength pushing Monday’s poor GDP reading to one side. The relative risk-on mood continues to benefit the Canadian dollar and crude prices, but market volatility is suppressed.