Login English Home About Our Services Insights Contact Sign Up News & Analysis New Covid variant send markets into classic risk-off mode Nov 26, 2021 GBP The pound continued its downtrend against the dollar in yesterday’s session, although losses were limited as economic events were sparse. The most notable of which yesterday was Governor Andrew Bailey’s speech at the Cambridge University Union, however commentary by the head of the BoE was very much in line with previous statements and therefore didn’t prompt much volatility in markets. This morning, normal service has resumed as the data calendar comes back online and US markets reopen, albeit not fully as many participants extend their holiday into a long weekend. In line with normal service, the pound is back under pressure against the dollar this morning, while it is set for its largest intraday loss against the euro since November’s dovish BoE meeting on the 4th. This is largely due to the deterioration in overall risk sentiment, which is hammering markets in the traditional manner with all risk assets trading in the red. The arrival of the new variant has resulted in the UK banning flights to six African nations this morning, with Namibia, Lesotho, Eswatini, Zimbabwe and Botswana joining South Africa on the red list. With little out of the UK specifically, focus will be on the development of the latest variant and news about how impactful it will be due to potential increased transmissibility or reduced vaccine efficacy. EUR European stocks are feeling the brunt of domestic outbreaks, current and looming measures, and the new emergence of the new Covid strain, although this hasn’t filtered through to the euro as the risks are no longer isolated towards the eurozone only. This does not imply that sentiment in the eurozone itself has improved, however. Leaked information from the Netherlands indicates that Prime Minister Mark Rutte and Health Minister Hugo de Jonge will announce tighter measures in a press conference tonight, including closing all non-essential shops, restaurants and sports facilities at 17:00. Schools, where most of the infections are happening currently, are expected to remain open to avoid further disrupting children’s educational development. France announced yesterday it will not return to a lockdown or curfew, but other less disruptive measures may be on the way. On the monetary front, Chief Economist Philip Lane reiterated yesterday he expects inflation to fall below target over the medium term, which is in line with the ECB’s mantra on inflation surges being transitory. Today, some focus will be on speeches from ECB President Christine Lagarde en policymakers Fabio Panetta, Isabel Schnabel and Philip Lane throughout the day at the Legal Conference, however markets will mostly keep an eye on updates on the virus front. USD Markets broadly traded flat throughout yesterday’s session with flow dominating moves in most FX crosses amid lighter liquidity conditions. While liquidity may remain thin in today’s session as many US participants enjoy a long Thanksgiving weekend, US markets are in fact open again today with some traders returning to a very different market than when they left it on Wednesday. This morning, the DXY index is under pressure for the first time this week, however, this is largely due to risk-off flows propping up JPY and EUR. The shift in risk sentiment that has resulted in the Japanese yen rallying over a full percentage point overnight stems from the emergence of a new Covid-19 strain in South Africa, which officials are saying is of concern. However, the DXY index is a poor measure of the overall dollar, as evidenced by this morning’s price action. While risk-off currencies such as JPY and CHF are making sizeable ground against the greenback due to the fresh global Covid concerns, along with EUR as US yields moderate and isolated concerns around Europe are no longer prevalent, the dollar is trading firmer against most G10 and EM currencies. Higher beta currencies like NOK and AUD are leading losses in the G10 space, while out of the major EM currencies the South African rand is under the most pressure as it hits year-to-date lows for obvious reasons. CAD The loonie made marginal gains against the US dollar yesterday as oil markets stabilised just shy of the $80 mark following increased volatility this week and FX markets took a breather from the rampant USD strength as US markets closed for Thanksgiving. This morning, however, with oil falling over 5% already on Covid concerns due to the new variant, the loonie has fallen near a percentage point against the dollar. With very little in the way of economic data out of Canada today, the focus for USDCAD traders will be on broader market risk sentiment and incoming resistance levels as the pair rises to its highest level since September 30th. Disclaimer This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. 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