FX Daily: Downside risk as Bank of Canada meets
|A possible downward revision to GDP projections could weigh on the Canadian dollar today.
USD: Virus fears ease
Risk assets have found some support - while USD/JPY is back above 110 - as the Chinese government takes steps to counter the spread of the coronavirus through nationwide screening. At the same time, news of infected patients in the US and Thailand is keeping the markets jittery and it’s likely too early to call for a rebound in global risk appetite. Even if the outbreak is contained, the impact on tourism and transportation in China might counteract the recent supportive dataflow in the region. Turning to today’s calendar, US home sales data should underpin the notion that the housing sector is robust. Meanwhile, the impeachment trial in the Senate has kicked off, though this is unlikely to result in President Trump's removal from office (thus limited market impact). With no key data releases to dent the dollar’s newfound resilience, we expect it to cruise around or slightly above current levels for the rest of this week.
EUR: Wait-and-see ahead of ECB
The European Central Bank meeting is approaching (tomorrow at 12:45 GMT). We have discussed the possible scenarios along with FX implications in “ECB and EUR crib sheet”. In a nutshell, we expect the impact on EUR/USD to be muted. For today, investors are likely to maintain a wait-and-see attitude and the pair should stay rangebound.
GBP: Some relief, waiting for PMIs on Friday
UK labour data did little to support the case for a rate cut by the Bank of England this month. The next occasion for GBP bears will come on Friday when PMIs are released, but for now the dovish narrative has mildly waned, with markets now pricing in a 62% implied probability of a rate cut this month, down from 70% before the data. In the meantime, sterling is enjoying some respite, consolidating above 1.30 in cable and moving below-0.85 in EUR/GBP. The fact that data has not materially disappointed may continue to offer some support to sterling as investors push their expectations for a cut from January to March.
CAD: A high bar for a BoC hawkish surprise
The Bank of Canada will announce monetary policy today, slightly after the release of December CPI figures, which should remain marginally above the 2% target mid-point. As we highlighted in our BoC preview, the market has consistently scaled back rate cut expectations despite a slew of grim domestic numbers. 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 set the bar for a hawkish surprise quite high at today’s meeting. In turn, we see the balance of risks skewed to the downside for the Canadian dollar today, with the trigger possibly being a revision of GDP projections released with the Monetary Policy Report.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.