Citi

European Open

A generally quiet session in FX this morning. Early in the session, we were reminded of geopolitical risks. New York Times report that President Biden is considering deploying US troops to Eastern Europe and NATO allies in the Baltics after a build up for Russian troops on Ukraine border, with a decision expected early this week, according to unnamed officials. However, this did not impact sentiment much. DXY and UST yields ticked higher, while we saw modest gains in equities and energy prices. PBoC delivered a 10bps cut to its 14-day reverse repo operations to 2.25%, while CNH traded heavy ahead of the Chinese New Year holidays next week.

Looking ahead, we note that GBP is still awaiting Sue Gray’s report on Prime Minister Boris Johnson’s activities during the peak of the pandemic. GBP will also sight Markit PMI data at 09:30 GMT. EUR will welcome Italy’s presidential election, which will see voters at the polls starting 14:00 GMT, as well as France & Germany Markit PMI at 08:15 GMT and 08:30 GMT respectively. TWD will see IP at 08:00 GMT, MXN a CPI at 12:00 GMT, and KRW a GDP at 23:00 GMT.

FOMC Outlook

CitiFX Strategy’s Ebrahim Rahbari emphasizes on three points in his bottom line: (1) We expect the January FOMC to broadly validate expectations by signaling a March rate hike, but completing the final leg of net asset purchases. (2) We see slight downside risk in yields and the Dollar around the Meeting and note that the Dollar has tended to follow the direction of rates volatility. (3) Ending QE early would be a major hawkish risk, while financial markets could be sensitive to Fed comments on financial conditions

CIBC

Key Headlines

Canada is on the cusp of a series of rapid interest-rate hikes, with the central bank poised to start raising the cost of borrowing as early as next week, beginning a sustained push to bring high inflation back under control. Consumer prices are rising at the fastest pace in three decades, straining the bank’s credibility as an inflation fighter. Meanwhile, there’s growing evidence that the economy is operating at or near full capacity and no longer needs emergency monetary-policy support.

The worst Australia consumer confidence since 1992 and the supply chain crisis amid the shortage of RATs shows that mismanaging the pandemic is mismanaging the economy. Australians were led to believe that 2022 would be better than 2021, but last week’s consumer confidence figures told a very different and very concerning story. The Morrison government’s failure to do its job and supply enough rapid antigen tests is inseparable from the disaster we are observing in supermarkets around the country.