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Euro up ahead of ECB


22 January 2021

Fears of prolonged shutdowns in Europe’s major economies and the slow rollouts of vaccines are the main reasons why the euro has been underperforming lately, although the single currency did manage to join in the Biden rally, recovering back above the $1.21 level.

Uncertainty ahead of the European Central Bank’s policy decision today (12:45 GMT) had contributed to the euro’s earlier selloff yesterday following reports that the Bank is targeting Eurozone yield spreads. However, even if President Lagarde confirms such a policy in her press conference today (13:30 GMT), it’s unlikely to lead to anything that resembles yield curve control, at least not anytime soon.

It’s also not clear how dovish the ECB will be today given that despite all the present gloom, growth forecasts for the second half of 2021 remain optimistic. Policymakers still have more than €1 trillion left in the pandemic emergency purchases envelope so any dovish remarks will likely be for the sake of talking down the euro.

Pound, aussie and kiwi charge higher as dollar skids, loonie pauses for breath


Elsewhere in the FX sphere, the US dollar took a big hit from the optimistic tone, falling to a one-week low against a basket of currencies. The pound and kiwi were the biggest gainers as traders scaled back expectations of rates turning negative in Britain and New Zealand. Bank of England Governor Andrew Bailey once again cast doubt on the benefits of below-zero rates in remarks yesterday.

The aussie was lifted by encouraging employment numbers out of Australia today, while the Canadian dollar was catching its breath after shooting higher on Wednesday following the Bank of Canada meeting. The BoC is looking past the current economic challenges and pinning its hopes on a strong economic rebound later in the year, dashing expectations of a ‘micro rate cut’.

Another central bank standing pat in the last 24 hours was the Bank of Japan. As expected, though, the yen took its cues from the broader risk sentiment, slipping against its peers today.

#source

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