Optimism is fading: lockdown is spreading worldwide and the ECB comforts expectations that central banks cannot do much more

The balance between optimism linked to vaccines and hopes of fiscal stimulus in the US and pessimism fueled by the immediate impact of the pandemic and very limited room for manoeuvre of central banks tilts towards the latter for the end of this week. There are rumors about an imminent lockdown in Hong Kong and the ECB delivered a message that was perceived as rather hawkish yesterday, a bit disconnected from reality, which weighed negatively on the bond market (ie bond yields were up). The USD weakened further, but only slightly: the EUR/USD is trading a bit above 1.2150 this morning. The GBP kept on strengthening, thanks to good progress in the vaccination campaign, as we explained yesterday: GBP/USD reached a 3-year high, near 1.3750. It weakened a bit this morning nevertheless after disappointing economic reports.