Covid Developments And US Spending Bill Shape Risk Sentiment

Risk assets have taken a knock as markets digest news from the UK of the COVID-19 situation in the UK/Brexit dynamics. Headlines crossed the wires that negotiators in congress have reached a deal for a spending plan, though the announcement was tempered by conditions from both sides and the caveat that no deal will be signed until tomorrow evening. So far the news has had little effect.

• GBP the clear underperformer in early FX trade this week as another weekend passes without firm progress on the Brexit front, with reports pointing to continued disagreement re: fishing matters. The Covid-19 situation in the UK is also providing a source of pressure for GBP, with a new tier 4 system put into place across London and most of the South East of England. Further, European nations have started to close their borders to travellers from the UK. GBP/USD last down 116 pips at $1.3406.
• Covid concerns continue to weigh in Australia after a jump in cases in New South Wales/Sydney. The state has imposed restrictions from Sunday night that limit gatherings in homes and limitations on travel. AUD/USD gapped lower at the open, last down 29 pips at $0.7592 and holding below the 0.76 handle.
• The kiwi has also been pressured by the coronavirus outbreak in Sydney/tighter social restrictions in the city, which could derail the implementation of a trans-Tasman travel bubble. NZD/USD last down 34 pips at $0.7101.
• USD/JPY re-opened slightly higher but has trimmed gains since and last sits 6 pip higher at Y103.35. Both sides of the pair outperform their other G10 peers, as the space feels jitters surrounding UK Covid-19/Brexit situation. Worth noting that Sunday was a Gotobi day in Japan, while the Nikkei reported that PM Suga asked MoF officials not to allow USD/JPY to fall through the Y100 mark.
• PBOC fixed USD/CNY at 6.5507, around 192 pips weaker than Friday's fix of 6.5315, but slightly stronger than sell side estimates of 6.5523. The PBOC injected a net CNY 90bln of liquidity. Elsewhere, China's central bank left its monthly LPR fixings unchanged, as expected.
• In EM most USD/Asia crosses are higher, the exceptions are TWD and KRW which have strengthened slightly after both weakened last week. KRW has seen a bid after strong export data and reports that new Covid cases drop under 1,000.
• Focus turns to advance EZ consumer confidence and a speech from Norges Bank Gov Olsen.