USD: FX market have stabilised overnight, in part helped by FOMC’s Brainard’s comments that she has been paying close attention to the recent moves in US Treasury yields. The UST volatility is currently the main risk to risk assets and FX, these comments should provide some breathing room for stabilizing FX today. Domestically, the focus is on Feb US ISM Services. Most of the market is looking for a modest correction from the Jan reading, which should add to the stability in risk assets today.
CAD: The loonie is little changed on the day leaving the USD/CAD trading back near 1.2650. Crude is little changed and risk appetite is weak which rather suggests the CAD will struggle to advance materially. Still, the broader backdrop for the CAD remains supportive, with the general rise in commodity prices in recent weeks providing some solid anchoring for the CAD; if it can’t rise too much at the moment, it may not fall too far either.
EUR: In the context of sharp moves in UST yields and the equity market volatility, EUR/USD has remained fairly resilient, staying above the 1.2000 level. We note that despite the recent developments, the short-term EUR/USD financial fair value has not deteriorated too much, being currently around 1.2140 based on our estimates. This means that the current EUR/USD spot level is close to fair and the dips below the 1.2000 support level are not warranted fundamentally. Look for stabilization before further upside.
GBP: The Chancellor unveils the UK budget today. The latest reports suggest that furlough scheme will be extended until September (in full until June, and with diminishing government contribution from July onwards). Most are not looking for a major tax announcement, though the Chancellor may signal an intention to raise taxes next year. Overall, the additional fiscal support announced should underscore the constructive outlook for GBP for 2Q. Most continue to expect the GBP/USD to breach the 1.5000 level in 2H21.
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