FX daily: The pendulum swings for GBP
The resignation of prime minister Boris Johnson’s chief advisor Dominic Cummings should be perceived as GBP positive, particularly in the context of the final stage of the UK-EU trade negotiations
USD: Markets taking a pause for a breath
Equity markets are still taking a pause for breath after the US election outcome and the vaccine announcement rally.
Surging cases in the US and Japan have reminded the markets of a tough winter ahead. While the pause in the risk assets rally is understandable (particularly if accompanied by profit-taking after the strong first half of the month), the view for 2021 remains constructive (given the outcome of the US elections and the prospects of a vaccine) suggesting only a limited upside to USD.
This also suggests a pause in emerging market FX gains, but TRY should remain an exception given the expectations of meaningful monetary tightening next week and the lira’s very appealing carry characteristics point to further outperformance and further compression of its risk premium.
EUR: Keeping flat for today
With a calm day on the data front ahead and the risk rally stalling EUR/USD should remain range- bound and hover around the 1.18 level today
GBP: The pendulum swings
The resignation of prime minister Boris Johnson’s chief advisor Dominic Cummings, seen by many as the mastermind behind the successful Brexit campaign and referendum, should be perceived as GBP positive, particularly in the context of the final stage of the UK-EU trade negotiations and the reported limited progress being made in recent days.
This follows the resignation of Downing Street communication director Lee Cain on Wednesday, with both events suggesting an easing influence of Brexiteers within the PM’s inner circle. On the margin, this should swing the pendulum of probabilities towards a UK-EU trade agreement and help EUR/GBP to head closer to or below the 0.8900 level again.
CZK: Central bank minutes to reiterate delay in projected tightening
Czech national bank meeting minutes published today should modestly tame the recent pricing of market expectations of the CNB interest rate path.
They are likely to reiterate Governor Rusnok’s comments that the board sees interest rate increases facing delays vs the guidance of the official forecast (prepared by the monetary policy department). Nonetheless, the CZK outlook for next year still looks bright as the economy should experience a strong rebound in 2Q21 after a tough winter. The central bank remains the most hike-prone in the region.
With 2021 being less turbulent than this year and lower volatility ahead, EUR/CZK should be heading lower
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