Where sterling was struggling to keep up with the G10 move against the dollar this week, as the rising domestic virus case count and slow pace of the vaccinations weighed on the currency, this morning the pound is the only currency in the G10 that is trading flat against the dollar. The limited price action in the pound can be pinpointed as the rationale behind today’s limited move in GBPUSD at a time where the rest of the G10 sits in the red. Concerns over the domestic outbreak in the UK remain for markets as the nation recorded over 60,000 new cases yesterday for the second consecutive day. The pace of new cases outstrips European counterparts but also is partly due to increased testing. With restrictive lockdown measures in play still, the development of the latest Covid-19 wave and the speed in which vaccines are distributed will hold the key for sterling’s fortunes.
As for most other G10 currencies, it has been a mild back and forth session for the euro since the protests in the US capitol. This morning, EURUSD failed to gather enough steam after positive data from Germany, as the dollar crawling back from last night’s lows proved to have a larger impact. German Factory Orders rose by 2.3% month-on-month in November, flying past the consensus for a 0.5% decline. The sharp increase adds to the picture that manufacturing in Germany is handling the renewed lockdown measures and following economic disruptions well, and tells a clear story of a strengthening recovery through Q4. The remainder of the day contains a packed data calendar, with eurozone retail sales, inflation figures, and several confidence indicators to be released at 10:00 GMT.
Despite last night’s events in Washington DC, FX markets remained relatively calm as the dollar weakened marginally. Notable risk gauges such as USDJPY, gold and the VIX index showed very little in terms of a reaction to the Capitol building being breached, suggesting markets are looking through the possibility of this escalating to a challenge on the US constitution. With the Capitol building now cleared and the National Guard sent in by President Trump, Congress continued its joint session to ratify the election results. Thus far, the joint session presided over by Vice President Mike Pence has seen all attempts by GOP lawmakers to nullify the election results from Arizona, Georgia and Pennsylvania fall to the wayside. The biggest challenge came from Arizona, where over 100 GOP lawmakers supported the challenge to the result, but both the House of Representatives and the Senate voted this challenge down. Finally, in the early hours of the US session (3:32 am to be exact), Joe Biden was certified as the next US President ahead of his inauguration on January 20th, confirming yesterday’s muted market reaction to the protests. With the Democratic victory in both Georgia Senate seats yesterday also, Biden will take power with a slim majority in the Senate along with the House. The focus now will be on the smooth transition of power between now and January 20th, especially as President Trump is yet to concede defeat, along with any early proposals of fiscal policy coming from the blue corner.
The Canadian dollar’s rally stalled yesterday as markets were less decisive in selling the US dollar as they were in previous sessions. The loonie now sits near three-year highs as traders assess domestic and global economic conditions to decide whether the rally should take another leg higher. Thus far, however, little has changed on the domestic front as the data calendar slowly resumes after a hiatus over the Christmas period. Friday’s labour market report should give some clarity over the latest economic conditions, however. The only new development has been in the form of tighter restrictions in Quebec. Premier Legault announced yesterday that the second-largest province will enter a full lockdown to blunt the growth in new cases. Under the new measures, residents won’t be permitted to leave their houses between 8 pm and 5 am, while non-essential businesses will remain closed until February 8th. Schools will reopen on Monday, however, with High Schools opening the following week. The latest measures have had little impact on the loonie thus far though.