News & analysis


Sterling has weakened further against the US dollar and the euro this morning, extending yesterday’s general trends. Both GBPEUR and GBPUSD took a further dive this morning during a speech from Bank of England Governor Andrew Bailey. Speaking at a webinar for the British Chamber of Commerce, Bailey said that the BoE needs to know how to implement negative rates, and that they should be in the toolbox, but that discussion of the topic did not imply that they would be used. Bailey also added, helpfully, that negative rates would “right puzzle” the public without clear communication on the topic. Covid and Brexit remain the two major themes for sterling, although little material new information has developed this morning. The Government has announced a slew of new measures aimed at controlling the spread of coronavirus through leaks and anonymous briefings to the media, with some expected to be formally reiterated today. Prime Minister Boris Johnson will give a speech in Parliament today at 12:30 BST. Pubs seem set to be given a 10pm closing time, while Downing Street did not deny reports that Johnson would be reversing his recent encouragement for workers to head back into the office.


The euro seems to be bearing the brunt of the pick-up in risk aversion sentiment in markets as fears of renewed lockdowns globally give rise to risk-off flows into the US dollar. Adding to the downside pressure on EURUSD, European Central Bank President Christine Lagarde stated on Monday that the central bank is paying close attention to the euro’s appreciation and its knock-on effect on inflation, with inflation being at its lowest level in four years. “We take it into account in the determination of our monetary policy and it’s via prices of course, via inflation, that we take it into account to define this monetary policy” Lagarde stated. Her comments sound a little watered down compared to her earlier statement during the ECB press conference of September, where she stated that the ECB does not target the exchange rate. ECB’s economist Fabio Panetta will speak at 13:00 BST today ahead of the Euro-area September Consumer Confidence and may provide further comments on the exchange rate. The Consumer Confidence Index is scheduled for release at 15:00 BST.


Yesterday’s session was reminiscent of a Rocky Balboa film for the dollar. After weakening to multi-year lows as measured by the dollar DXY index, the greenback has been trading like the underdog in G10 FX markets but showed a flurry of strength in yesterday’s session. This was a stark message of “down but not out” to markets as news of tightening lockdown measures in Europe opened the risk-off channel back to the dollar. Today and until Thursday, Fed Chairman Jerome Powell will testify in front of lawmakers, with today’s event taking place in front of the House Financial Services Committee. While the speech is scheduled to focus around the use of the CARES act, the piece of legislation releasing $2.2trn in fiscal stimulus back in March to protect against the pandemic fallout, his pre-released text shows the Fed Chair will continue to call for more fiscal support as the recovery remains uncertain. Additional fiscal stimulus has struggled to find bipartisan support in Congress and is increasingly unlikely to be passed prior to the Federal election as the clock ticks down to the end of the Congressional session at the end of September. Today, the dollar remains supported by continuing risk-off tones being struck in Europe, with the Chicago Fed President Evans the most notable monetary policy speaker scheduled in the calendar outside of Powell’s appearance. Evans is set to speak on the US economy and monetary policy at 13:00 BST.


The Canadian dollar felt the brunt of yesterday’s risk-off tone, falling some 0.78% against the dollar as WTI slipped back below $40 a barrel. While little was released for Canada specific, the loonie was trampled by the general G10 FX move which saw the dollar receive a boost as European equities were routed on news of further lockdown measures. The only major news out of Canada came from the federal housing agency, which stuck with its pessimistic forecast of Canada’s housing market. Chief Economist at Canada Mortgage and Housing Corp, Bob Dugan, reiterated his confidence in the agency’s forecasts yesterday that house prices will fall between 9% and 18%. Dugan claimed that while the timing of this drop is less certain, with the agency expecting the housing market to start recovering in 21H1, the dynamics in play are more certain and are likely to lead to a drop in Canada’s housing market in the coming quarters. We believe the housing market is one of the Bank of Canada’s primary concerns heading into the recuperation phase. We expect house prices to drop with the flushing through of pent up demand set to coincide with the tailing off of mortgage deferrals, a rise in delinquencies and the removal of fiscal support measures to the labour market. Today, the loonie continues to trade at the mercy of the broad G10 move, which continues to favour flows into the US dollar, ahead of tomorrow’s resumption of parliament and the most pivotal speech from the throne from the Liberals in some time.


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