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USD declined amidst a myriad of catalysts

USD: As expected, the Fed introduced qualitative, outcome-based guidance on asset purchases, effectively maintaining at least the current pace of asset purchases and no change in the weighted average maturity (WAM) of purchases. The fine print is marginally hawkish on the tapering criterion, forecast changes and lack of WAM changes, but the big picture remains forcefully dovish, including relative to the ECB.


Also boosting sentiment is fiscal stimulus hopes. Bloomberg sources reported that the Senate may approve the passage of a short-term stopgap bill to prolong the spending package’s deadline. This is a good sign for stimulus negotiations, and suggests congress is close but needs slightly more time to finalize details in addition to pushing via both chambers. The lack of agreement on US fiscal outlooks means a final decision would serve as a strong catalyst in either direction. In light of the most recent developments, Citi analysts remain optimistic on a bipartisan bill and believe that successful passage will give risk assets a final boon before year’s end. Conversely, this would also likely drive the greenback one last leg lower.


Moderna’s FDA Advisory Committee meeting takes place today. Akin to Pfizer’s recent advisory approval, the Moderna vaccine may likely see the committee approve its release. This would then prelude an Emergency Use Authorization (EUA) that would be expected to occur shortly after. 


JPY: BoJ announced yesterday to purchase USD cash (USD6bn) from the MoF before the end of March next year. According to the announcement, the main purpose is to prepare for smooth foreign currency supply to financial institutions in light of the pandemic environment, probably focusing the USD shortage risk that could occur at the end of the fiscal year (in March) particularly. Media reports suggest that this is part of a deal to finance a university fund.


CHF: As expected, the SNB has left rates unchanged and the language on CHF matches yesterday’s SNB statement following US Treasury FX designation: “In light of the highly valued Swiss franc, the SNB remains willing to intervene more strongly in the foreign exchange market.” Guidance was more dovish than expected - the extensive commentary on the pandemic second wave tilts the SNB’s risk assessment downwards going into 2021.


GBP: BoE left the policy rate unchanged at 0.10%, with APP unchanged at GBP845bn in gilts and GBP20bn in corporate bonds. Given Brexit uncertainty, it was unlikely for the BoE to drastically change their stance considering this is also a non-MPR meeting. Citi analysts stick with their base case of a cut to 0bps with more QE in February to cushion initial Brexit disruption, followed by no further cuts into negative territory. With ongoing Brexit uncertainty, Citi analysts see low likelihood FX pays much attention to the BoE outside firm signals on NIRP. Citi analyst expect the MPC to flag their contingency plans without announcing any recalibrations in current measures.


AUD: Jobs data beat the market expectation once again, with the jobless rate declined to 6.8% in November from 7.0% in October, while the participation rate rose to 66.1% from 65.8%. The results indicate a fairly solid recovery in the Australian job market. 

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