USD: The dollar continues its fall from grace, with the benign risk environment (the Dow Jones hit 30,000 for the first time) and the positive outlook for the 2021 post Covid-19 recovery further inducing flows out of the dollar into FX, with the trade weighted dollar continuing to dip lower. Treasury Secretary Mnuchin proposal to shift USD455bn from the unspent Cares Act to the General Fund (effectively making it hard for the next Treasury Secretary to use the funds as this requires approval from Congress) is unlikely to alter the current risk-positive environment. As for today, the focus is on the FOMC Minutes. We don’t expect much surprise and see limited room for the Minutes to tame the dollar decline. If anything, risks are skewed to a possible surprise coming from hints at a QE expansion in December.
CAD: WTI is trading above USD45/bl for the first time since March, while USD/CAD briefly broke below 1.30. It didn’t last (spot 1.3025). Equity markets continue to weigh on USD and there has been plenty of interest to buy CAD of late, though positioning monitor is reasonably neutral on USD/CAD. Look out for a volatile session ahead to US Thanksgiving holiday.
EUR: EUR/USD is getting a boost from wider USD weakness and we expect the trend to continue this year, with the pair moving to 1.20 in December. The comments from ECB officials that the central bank may lift the divided ban on EZ banks (depending on their capital positions) is also a marginal positive for EUR.
GBP: In the spending review today, UK Chancellor Sunak will set out plans for further support measures for the economy and to reduce the hit to employment from the Covid crisis. Although unlikely to be accompanied by fiscal consolidation spending cuts, the Chancellor should still hint at eventual tax rises (expected next year). Further fiscal support is a marginal GBP positive as it mitigates a more pronounced hit to the economy but in terms of the main GBP driving factor, the currency still awaits the conclusion of the UK-EU trade negations.
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