Traffic for sterling was one way in yesterday’s session as markets braced for a potential breakdown in Brexit negotiations while the dollar broadly rallied as major economies began to tighten lockdown restrictions. It is hard to untangle what the real driver of sterling’s 0.83% decline was yesterday, but with Brexit headlines sparse apart from comments from EU officials offering to extend talks to the end of the month the broad dollar move was likely the dominant factor. This is especially the case when considering London and some surrounding boroughs saw lockdown restrictions tighten as they entered the second of three tiers in the new localised lockdown system. The main additional measure is that households in these areas are now no longer allowed to mix in indoor venues, effective at 00:01 on Saturday morning. With markets trading more mixed against the dollar today, sterling is likely to bring its focus back from broad G10 moves to ongoings in Brussels. Leaving the EU summit at midnight, German leader Angela Merkel extended an olive branch to PM Johnson stating that calls for compromise “of course includes that we need to be ready to compromise. Each side has its red lines.” With EU chief negotiator Michel Barnier ready to enter “tunnel” talks with his UK counterpart, David Frost, in order to find a breakthrough in sticking points and Johnson set to announce this evening whether the UK will keep pursuing a deal, sterling will remain twitchy to the possibility that the UK will veer for a no-deal exit.


EURUSD fell to levels last seen in September in yesterday’s trading sessions, as risk sentiment remains dampened following markets’ reaction to the Covid spread in Europe, the US fiscal negotiation deadlock and the Brexit talks. The continued surge in case count makes European leaders face a difficult reality: lockdowns are sneaking back on the agenda, despite them being ruled out repeatedly by various European leaders through summer. Germany posted a record increase in new daily cases for the second consecutive day yesterday, while Belgian Prime Minister Alexander de Croo is set to announce more stringent measures later today. European Central Bank President Christine Lagarde repeated on Thursday that the ECB remains ready to ease monetary policy if needed, given the uncertainty about the outcome of the pandemic and in turn the eurozone economic recovery. Lagarde’s pledge for accommodative policy may have added downward pressure to the euro as well. This morning, the pair traded in a narrower band with risk sentiment indicators being slightly less forward than yesterday and the safe-haven currencies trading mixed. Focus remains on the developments from the EU summit, with Prime Minister Boris Johnson expected to provide a response to the EU talks later this evening. Eurozone final CPI inflation figures at 10:00 BST are unlikely to stir up the euro unless the final figures wildly deviate from the preliminary reading.


The dollar rallied over the course of yesterday, as concerns about rising coronavirus cases weighed on risk appetite and US news flow focussed on Amu Coney Barrett’s Supreme Court nomination and allegations regarding Joe Biden’s son Hunter. The Trump campaign and Republican National Committee released details of its September fundraising, which totalled $248m – far less than the $383m raised by the Biden campaign and democrats. Stimulus talks went nowhere this week, despite valiant efforts from the Trump administration to maintain a stream of news flow keeping some hope alive for a broad fiscal package before the election. President Trump commented on a recent World Trade Organization ruling in favour of the European Union, saying that the US will “strike much harder” if the EU acts on the ruling, which allowed retaliation for state aid provided to Boeing by the US. Yesterday’s data included interesting readings for initial jobless claims, which rose to almost 900,000 last week. Continuing claims fell faster than expected to just over 10 million. The overall picture is one of sustained pressure on the labour market, and October’s non-farm payrolls report may well show a number in the low hundreds of thousands or even flat growth as a result. Today at 13:30 BST monthly retail sales data will be released, followed at 14:15 by industrial production.


The loonie is set to close the week out in the red as it reversed Monday’s rally and then some in yesterday’s trading session. The move wasn’t isolated to CAD, however, as the market broadly sold off against the dollar as the global growth outlook deteriorated with major economies tightening lockdown restrictions yet again. In Canada, two of its largest provinces are subject to a 28-day lockdown, meaning the currency wasn’t immune to this risk-off fire sale yesterday. In politics, the Conservatives warned the Bank of Canada against financing Prime Minister Trudeau’s spending plans beyond the immediate pandemic emergency measures. The Bank of Canada has purchased C$168n in government bonds to date under its first foray into quantitative easing and has recently scaled back some emergency liquidity operations, citing improved market functionality. None of its activities has been untoward relative to other G10 central banks in response to the pandemic, but the problem with quantitative easing is that it can be viewed through political lenses. While its main purpose is to improve the transmission of low rates to the economy by keeping government bond yields low and in line with the bank rate,  by keeping bond yields low it reduces the cost of financing fiscal deficits – a key area of contention between the Liberals and the Conservatives.



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