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The Bank of Canada did not rock the boat at the December meeting

USD: With all eyes on the ECB today, the US data should be in the background and the Nov US CPI (expected to accelerate to 1.5% YoY) should have a limited impact on the dollar. This is particularly the case when the key domestic focus is on the likelihood and size of the US fiscal stimulus.

CAD: The Bank of Canada did not rock the boat at the December meeting, with no change to the overnight rate or QE, and no material change to forward guidance. The Bank struck a balanced tone on recent developments, downplaying both the weaker-than-expected Q3 GDP numbers and the stronger recovery in CPI. The key takeaway from today is that the Bank sees things evolving largely as expected and appears comfortable with the amount of stimulus currently in place. There is still considerable uncertainty surrounding the outlook, but the Bank is unlikely to say too much ahead of the January policy decision. The USD is still stretched on short-term drivers and as such we expect some consolidation into year-end that would support another push through 1.30.

EUR: With President Lagarde building high expectations in the October meeting and largely pre-committing to ECB easing in the December meeting, it will be a very difficult task for the central bank to weaken EUR (as was the case in the September 2019 meeting, when high market expectations weren’t exceeded). It looks to be too soon for the ECB to embark on more aggressive verbal intervention as the trade weighted EUR is close to its 4-month average. If anything, there is a risk is that that the press conference bias pushes EUR higher, particularly if the forward guidance beyond the December easing package is not strong. We expect the impact on EUR to be neutral and target EUR/USD 1.25 in 2021, with a strong upside risk to 1.30. As for the EU summit and the EU budget and the recovery fund approval, agreement is now largely expected.

GBP: Little progress was made during the meeting of PM Johnson and EC President von der Leyen yesterday, with Sunday being now set as the deadline to conclude negotiations. GBP is likely to trade on the soft side today

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