News & analysis


The pound was unchanged vs the euro throughout yesterday and mildly rallied against the weakening dollar, and remains under pressure today from the rapid acceleration in daily virus cases in the UK, as 1 in 30 Londoners and 1 in 50 Brits are now estimated to be infected. Prime Minister Boris Johnson vowed to speed up the government’s vaccination programme in order to eventually lift the latest lockdown that for now remains in place until March 23. 1.3 million people across the UK have already received the first two shots, and another 14 million high-risk people are scheduled to be vaccinated by mid-February. The UK is under a lot of pressure to keep up to the schedule, especially after overtaking Italy again as the country with Europe’s highest death toll. The concerns over the domestic outbreak are weighing on the pound. Even though sterling continues to rally against a weakening dollar, it sits firmly near the bottom of the G10 pile, thus weakening against other key trading partners. Today, Bank of England Governor Andrew Bailey testifies on the financial stability report in front of the Treasury Select Committee at 14:00 GMT.


The euro is riding on the coattails of the Senate run-off in Georgia today as a weak dollar helped EURUSD reach fresh highs last seen in April 2018. During today’s early trading session, the pair rallied by a similar amount as throughout the entire trading session yesterday, again driven by a weaker dollar across the board. Like the UK, the eurozone is also buckling under the strain of the virus, with Germany extending and tightening lockdown measures to contain the spread. The measures are in place until at least Jan 31, and authorities will meet on Jan 25 to discuss next steps. Meanwhile, as one of the late bloomers, the Netherlands is set to start its vaccination programme today, starting with healthcare workers. This morning’s services and composite Purchasing Managers’ Index figures showed a mixed bunch similar to Monday’s manufacturing figures. The numbers in Italy significantly worsened, while Spain’s PMIs moderately improved. France and Germany’s final figures are all revised downwards a notch. All figures remained below the 50-level threshold. German Saxony inflation in December edged lower by 0.1pp to 0.0% YoY, and while Bloomberg does not report a consensus, the weakening headline is not a surprise to markets considering the stringent lockdown measures in Germany.


Despite Monday’s dramatic turnaround in the dollar as risk sentiment wobbled upon the US equity open, the greenback found little respite in yesterday’s session. Pressure on the dollar remains today, however, USD weakness isn’t visible across all G10 currency pairs like it was in the past few days. News that Democrat Raphael Warnock has beaten Senator Kelly Loeffler in one of the Georgia run-off races, while the battle between Jon Ossoff and Senator David Perdue remains close, increased the probability that the Democrats could take control of the Senate. Upon the Warnock announcement, US Treasury yields rose and the dollar came under slightly more pressure. That theme in markets will likely be extended should Democrat Ossoff win the other run-off race. For now, markets are yet to fully price in the possibility of a Democrat controlled Senate as the results of this run-off are extremely close. For perspective, Warnock beat Loeffler by gaining a majority of just 50.56%, while Ossoff leads the second seat with an even tighter margin of 50.15% as 98% of the votes are counted. With thin margins, political backlash is likely to ensue, especially given Trump’s unsubstantiated comments about fraudulent votes in the state of Georgia of late. This could cause some volatility in markets, however, the results of the run-offs are likely to be priced as the final result by markets.


The loonie rallied 0.85% in yesterday’s session to carve fresh highs against the dollar as WTI jumped $2.55 and US equities rebounded. The price of WTI crude now sits at $50 per barrel after Saudi Arabia surprised markets with a unilateral cut in output of 1m barrels. The move by Saudi Energy Minister Prince Abdulaziz bin Salman papered over the cracks in OPEC+ at a time when markets were expecting the group to increase output by 500,000 barrels in February, as per Russia’s request. However, demand conditions haven’t fully recovered yet, meaning the impact loosening supply constraints would have on the price of oil could have had an inflated impact purely because of the signal it sends. This is evident in the rally in WTI on the back of additional supply curbs, with the price of crude now sitting at levels not seen since the pandemic started. As a token of goodwill, Russia and Kazakhstan were permitted to add a combined 75,000 barrels a day to their supply quota in February and March – the months in which the Saudi supply curbs will be imposed – but this minute increase has done little to take the shine off of WTI this morning. The loonie continued to surge in the early hours of the European session, and now sits near three-year highs, but profit taking and tentative pricing of the USD around the Georgia run-offs meant that the loonie has retraced somewhat since then.



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