U.S. dollar highlights:
USD stronger and trending higher after 10-yields dropped to new all-time lows and risk aversion continues to dominate the markets. Investors are preferring government bonds in this environment of uncertainty. Meanwhile, markets have priced in another rate cut from the Federal Reserve during the March 18 meeting. Schools in California are closed in addition to many large events in North America cancelled due to fears of Covid-19 spreading. The Inflation rate for February will be available tomorrow, however, event risk will be the main factor for USD this week.
Canadian dollar highlights:
CAD weaker and under pressure after oil crashed more than 30% amid Russia and Saudi Arabia declaring an all-out price war. The Kingdom threatened an increase to record high production after Russia said they will also ramp up next month. Lower demand from the outbreak and more production is weighing on crude prices and CAD. Markets are now concerned Canada will experience a recession due to imminent layoffs in the industry and lower government revenues. GDP will also be affected due to the recent rail blockades. Markets are now starting to price in a 75bps rate cut from the Bank of Canada during the April 15 meeting.
EUR stronger due to a widening of European yields, despite an increase in coronavirus cases. Italy imposed quarantine measures with the northern part of the country on lockdown. European governments will implement expansionary fiscal policy this month. Germany plans to increase spending and investors are buying government bonds for safety. GDP for Q4 expecting 0.9% growth annualized today (previously 1.2% expansion in Q3). All eyes on the interest rate decision and press conference (available Thursday).
British pound highlights:
GBP firm as markets wait for the government to release the budget tomorrow. The new finance minister is expected to increase spending to deal with the outbreak. Markets are also prepared for a possible 25 basis points emergency rate cut this week. The Bank of England’s next meeting is on March 26 with new Governor Andrew Bailey. Currently a 91% chance of monetary easing this month and 50% chance later this year (due to the risk of a no-trade Brexit deal).