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The ECB meeting will, in our view, have limited implications for EUR/USD. The two key points in the Bank's message should be, in our view, that data suggests a pick-up in inflation, and the manufacturing cycle has bottomed out. Most eyes will however be on the announcement of the strategy review, specifically in relation to the duration of the review (we think until year-end), but also on who will participate in the process (EU Parliament, academic groups). Our economists think the review will eventually lead to a new definition of price stability as “around 2%”. Finally, markets will have ano...
The BoC will announce monetary policy today, slightly after the release of Dec CPI figures which should remain marginally above the 2% target mid-point. As we highlighted in our BoC preview, we note that the market has consistently scaled back rate cut expectations despite a slew of grim domestic data. In line with consensus, we do not expect any change in the monetary stance just yet, but we suspect markets are underestimating the chance of a BoC cut and likely set the bar for a hawkish surprise quite high at today's meeting. In turn, we see the balance of risk skewed to the downside for CAD ...
Short term focus today turns to developments in Asia where an outbreak of the coronavirus in China recalls the events of the SARS virus in 2002-03. News that this can be spread human-to-human comes just before the Chinese Lunar New Year travel season and stands to curtail travel, transport and retail sales. The SARS episode largely impacted Asia, although did spread to Canada, and now stands to dent some of the new-found optimism in Asia after the US-China trade détente. Asian FX weakness may provide a little strength to the dollar and could keep DXY well inside a 97.10-97.80 range.
The Bank of Canada meets tomorrow, and we expect no change in the monetary stance (in line with consensus). However, we suspect markets have too aggressively priced out BoC easing and the balance of risks for CAD appears tilted to the downside.
In the week 8-14 January CFTC reports a jump in GBP net long positioning. The yen keeps suffering from a supported risk environment and is now the biggest G10 speculative short. CHF net positions are at their highest since 2017, while the dollar lost ground across the board
Both Nov UK labour data (Tue) and Jan PMIs (Fri) will be closely watched this week after the stream of disappointing UK data last week. Downside surprise / non-improving data would likely cement the market expectations of the January BoE rate cut. However, the market already pencils in the Jan rate cut with 70% probability. This suggests that the negative GBP reaction towards the possible softer UK data may be limited. If anything, risks are skewed to more pronounced GBP upside (than downside) this week should we see a rebound in PMIs - which would reverse the imminent monetary policy easing e...
It has been a positive start to the year for most asset classes and in the FX space those currencies hit hardest on the trade war have been the biggest beneficiaries. With G3 central banks unlikely to take away the punchbowl of cheap money anytime soon and strong inflows to the asset management industry, the risk environment looks encouraging for the near future.
Central bankers in the eurozone, Japan, Canada and Norway announce their policy decisions next week but don't get too excited, caution will likely prevail and no changes are on the horizon. Barring a major disappointment, UK data may pour cold water on expectations for a Bank of England rate cut, suggesting it will be a “dry January” for all G10 central banks
A round of cheerful Chinese data overnight dispelled fears of an imminent slowdown in the world's second economy. GDP held at 6% in 4Q while industrial production and retail sales beat consensus. Except for a stronger yuan, the data has helped stabilizing global FX dynamics but without triggering a rally in risk-sensitive currencies. A wait-and-see approach may prevail today as we leave an eventful week for the markets and head into another interesting one, packed with central bank activity and data. In this “interlude”, the USD should be able to consolidate yesterday's data-driven gains, as m...
We don't think the Russian government reshuffle (PM Medvedev replaced by Mishustin) as overly negative for RUB at this point. The orderly nature of the reshuffle suggests limited scope for political risk premium being priced into the ruble, while concerns about possible irresponsible fiscal easing (one which would reintroduce credit risk premium into RUB) are not justified at this point. The currency still benefits from one of the highest real rates in the EM FX world and remains undervalued within our BEER valuation framework. At this point, one of the biggest risks to RUB is a possible rever...
With a three-month delay, the US Treasury FX Report has been released. As expected, China's manipulator label was lifted and the attention may now shift to Europe and Germany's large surplus. In Asia, the recent drop in global FX intervention volumes will be challenged by the next dollar downturn
The long-awaited signing of the Phase One deal between the US and China is scheduled for today, with the market focusing on the details of the agreement. Although recent comments from US officials suggest that a further decrease in tariffs on Chinese exports is unlikely ahead of the US November Presidential elections, we don't see this as negative for risk sentiment. We have always seen a complete removal of tariffs in 2020 as fairly unlikely. Rather, our outlook for 2020 has been focused on the de-escalation of the trade conflict and stability (both in global economy and trade), which would i...
While bund yields edged meaningfully higher yesterday, any repeat of the 2017-euro rally (whereby rising bund yields led to a large euro strength) is unlikely as the current move is supply driven, rather than caused by ECB policy