News & Analysis


The pound was one of the main beneficiaries of the broad USD weakness in yesterday’s session as the currency rose 0.65% open-to-close against the dollar and 0.31% against the euro. An improvement in the risk backdrop as tighter restrictions aren’t being announced across most major nations this side of Christmas was the catalyst in the thin trading session. Additionally, while seasonality tends to favour USD buying this time of the year, we flagged that this year it may be the opposite given the broad USD bid at the beginning of January meaning portfolio rebalancing may see USD selling towards year-end. Domestically in the UK, however, over 106,000 new cases of Covid were recorded yesterday. This was the highest reading on record, but with anecdotal signs and preliminary medical evidence suggesting the severity of symptoms is reduced this time around, the government has opted to not impose any fresh restrictions this side of Christmas.


The euro also benefited from the broader USD weakness yesterday and extended gains this morning to rise close to weekly highs. This morning, Spain’s final Q3 GDP figures rose to 2.6% QoQ, vs 2.0% in the preliminary reading, while German import prices from November rose 3.0% MoM, well above the consensus of 1.0%. The positive data was largely ignored by markets as focus remains on broader macro flow and Covid headlines, especially after the FDA’s approval of Pfizer’s Covid treatment pills and AstraZeneca’s reports that their boosters are effective against Omicron. In terms of lockdown measures domestically, Germany’s officials stated earlier in the week that a hard lockdown is not ruled out but is not needed right now. One point of concern for Germany and Belgium is that Dutch consumers are crossing the border of their locked down country to enjoy more shopping freedom ahead of Christmas in their neighbouring countries, which meant German and Belgian officials have asked people to avoid cross-border journeys as their journeys could mean tighter lockdown measures for the neighbouring countries too.


The dollar lost ground against most G10 currencies except JPY in yesterday’s session as risk sentiment improved somewhat following optimistic headlines around Covid pills, boosters, and Omicron. The Food and Drug Administration granted emergency authorization to Pfizer’s Covid treatment pill, which is a solid milestone in the recovery of the pandemic. The FDA cleared the pill for patients 12 and up with mild to moderate symptoms who are most likely to end up hospitalised. The agency said it should be prescribed as soon as possible after diagnosis and within five days of symptom onset. Additionally, Astrazeneca announced that its booster shot increases antibody levels against Omicron, which was welcomed by markets along with further news that Omicron appears less likely to put patients in hospital than the Delta strain, according to a number of studies. Holiday-induced light trading sessions are going to become increasingly more prominent in the next few days as markets dull down ahead of Christmas.


The loonie rallied off of yesterday’s positive virus headlines as these brought crude oil prices back up to highs seen across the early parts of the month. The improved market sentiment and rally in WTI meant USDCAD was down over half a percentage point on the day, while downside in the pair has been extended this morning. Broader macro flow is going to continue to drive the Canadian dollar in the next weeks although volatility is likely to be thinner amid the holidays due to lower liquidity and an empty data docket. Before the data calendar empties until the new year, however, market participants can expect the release of October’s GDP data which is released at 13:30 GMT. The data is expected to show growth momentum picking up from 0.1% to 0.8% MoM, as highlighted in the StatsCan preliminary reading in September’s report, however the pace of the expansion is likely to peak for Q4 in October given the BC crisis in November and the Omicron impact in December. Any slip in October’s data could limit further CAD gains against a broadly weaker dollar.



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