Novel Virus Strain, Brexit Brinkmanship Weigh On Risk Despite U.S. Fiscal Progress

Risk assets started the week on the defensive after UK authorities placed London and areas across South East England under strict lockdown in a bid to prevent further spread of a new mutation of Covid-19, while a number of countries introduced restrictions on travel from the UK. Meanwhile, Brexit jitters lingered with negotiators from both sides of the English Channel struggling to break the current deadlock in their trade talks. GBP remained the worst G10 performer alongside NOK, with cable crossing below the $1.3400 mark (last -160 pips at $1.3364).

• Aforementioned developments outweighed the news that U.S. congressional leaders agreed on a $900bn economic relief package. The text of the bill is still being finalised and is expected to be put to the vote later today. USD outperformed its G10 peers amid demand for safe havens, which saw the likes of JPY and CHF pick up a bid.
• USD/JPY popped higher at the re-open before trimming gains. Sunday was a Gotobi day while the weekend saw the Nikkei run a source report noting that PM Suga asked MOF officials to defend the Y100 level in USD/JPY, which may have provided some mild support to the pair.
• The Antipodeans faltered on the back of a jump in Covid-19 cases in NSW/Sydney. The state has imposed fresh restrictions on home gatherings and travel from Sunday night, while the resurgence of virus put the smooth implementation of the trans-Tasman travel bubble at risk. AUD/USD gapped lower at the re-open and generally held below the $0.7600 figure, while NZD/USD slid under the $0.7100 level.
• NOK took a hit as crude oil retreated, taking UK lockdown measures/restrictions on inbound travel from the UK as a bad omen. The Nokkie landed at the bottom of G10 scoreboard, as tight liquidity conditions in the Asia-Pac session amplified volatility.
• 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.
• USD/Asia crosses generally moved higher, with KRW shedding a modicum of strength seen after strong export data and reports that new Covid cases drop under 1,000, as South Korea moved to tighten its Covid-19 restrictions. THB was the main laggard in the region after Thai authorities suggested they might expand lockdown measures implemented in the Samut Sahkon province after the detection of a new Covid-19 outbreak.
• A BBG source report noted that Joe Biden's Tsy Sec pick Yellen might put an Obama administration alumnus Brad Setser in charge of overseeing FX policy, which would include the compilation of the Tsy's widely watched semi-annual FX report. Setser is known from his hawkish comments on FX interventions by foreign governments.
• Focus turns to advance EZ consumer confidence and a speech from Norges Bank Gov Olsen.