Brexit and Stimulus Deal Hopes Fade, Boosts Greenback
DECEMBER 11, 2020
The U.S. dollar is mildly stronger this morning, with the biggest gains coming against the British pound.
Dimming hopes of a stimulus deal is weighing on the overall risk sentiment and giving some reprieve to the greenback. As we said yesterday, the closer we get to Christmas, the less likely a deal becomes. We will continue to monitor progress or lack thereof, but we are not hopeful.
A day after consumer prices pushed modestly higher, producer prices did the same. PPI rose 0.1% on a month over month basis, which was in line with expectations and will not sway the Fed to change their current course. Later, the University of Michigan consumer sentiment print will be released at 10 a.m.
What to Watch Today…
- U. of Michigan Consumer Sentiment at 10 a.m
The Euro is a touch lower this morning and remains in the relatively tight ranges we have become used to this week. Overall, the Euro has gained more than 8% against the U.S. dollar YTD, which would constitute the best year for the common currency since 2017. Intervention from the European Central Bank remains a stumbling block for the case for a stronger Euro, however. ECB President Christine Lagarde said yesterday that the Governing Council monitors the euro “very carefully.”
The Euro’s strength is likely more to do with overall dollar weakness. Covid continues to ravage the continent with especially dire conditions in the bloc’s largest economy. Germany reported record deaths yesterday causing leaders to contemplate a “hard lockdown” over the holiday season. Chancellor Merkel and the heads of Germany’s 16 states are expected to discuss options at a meeting on Sunday.
The British pound fell over one percent against the dollar as wild moves continue to be the norm this week. Yesterday, Prime Minister Boris Johnson told his constituents that they should prepare to leave the European Union’s single market without a deal. European Commission President Ursula von der Leyen echoed the dour sentiment saying that “no deal” is the likeliest outcome on December 31st.
Both sides have agreed to try to reach a deal before Sunday. GBP/USD is down nearly 3% from its peak last Friday but it’s mostly unchanged from one month ago.