USD: With the recent stock market rebound taking a pause for breath overnight, USD is further regaining ground in the G10 FX space. The upside of the low yielding G10 FX segment v USD should be fairly constrained until Q2, when there should be more signs of the global economic recovery. At this point, USD benefits from ongoing re-pricing (lower) of the prior market outlook on the scale of strength of any global synchronized recovery as well as the one-way short USD positioning.
CAD: The CAD is little changed against the USD on the day; a pro-risk mood and firmer WTI are lifting Canadian heavy crude are supportive of the CAD and helping drive CAD demand on modest weakness above the 1.28 zone. Firm crude prices provide a fairly significant cushion for the CAD at present and, all else remaining equal, should limit scope for USD gains in the short run. The Canadian calendar is clear of data until Friday’s jobs report. Note market expectations are for another weak print for January after December’s –62.6k; the consensus stands at –40k.
EUR: Former ECB President Draghi has been formally appointed to form an Italian government. We believe if a Draghi government sees the light of day, it will be to complete the legislature, as it seems unlikely the president would expend so much political capital on appointing a high-profile figure only to face an emergency. While on the surface good news for the euro, given that the currency has not been reacting to the recent Italian jitters short term risks remain to the EUR/USD downside.
GBP: The focus is on the BoE meeting today. We expect no change in the policy rate and no clear signal for negative rates. Although the BoE may formally lower its estimate of the lower bound to below zero next week, we don't expect policymakers to hint that negative rates are imminent. We expect GBP to reap the benefits of a faster vaccination rollout vs the EZ.
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