Dollar Down Slightly; Liquidity Starts to Thin

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Dollar Down Slightly; Liquidity Starts to Thin

DECEMBER 23, 2020

The U.S. dollar is slightly lower this morning as risk sentiment ticked higher abroad.

Overview

American stock futures are mostly flat, recovering from a dramatic drop late yesterday.  Despite the divided nature of America, there seems to be something that both sides can agree upon: their dislike of the stimulus package passed earlier this week.  After earlier indicating he would sign the bill, President Trump instead has asked Congress to increase the amount of payments to individuals from $600 to 2K.  House Democrats have welcomed the change pitting the President and House Democrats against Senate Republicans.  The President has until December 28th to sign the bill.  Analysts have said that they believe the President will ultimately sign the bill even without increased payment amounts, which allowed equity futures to rebound.

The holiday-shortened week means there is a slew of data on today’s docket and so far, the readings are not likely to materially change the direction of the greenback.  Personal income in November fell 1.1% on a month over month basis, missing estimates of a -0.3% decline. Personal spending also slipped more than economists’ forecasts.  On a more positive note, initial jobless claims fell to 803K last week, lower than the estimated 880K.  Durable Goods orders also surpassed expectations, rising 0.9% in November.   The University of Michigan consumer sentiment and new home sales are due out at 10 a.m.

Over the next week and a half, we will be cautious of thin liquidity and position squaring to end the year, so the chance for sharp currency movements cannot be discounted.

What to Watch Today…

  • U. of Michigan and New Home Sales at 10 a.m.

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EUR  

The Euro is a touch stronger this morning as risk sentiment in the Old Continent ticked higher.  The European Stoxx 600 rose half a percent after the French government said it will reopen port and train connections with the United Kingdom.  The news is most welcome after the shutdown paralyzed Britain’s busiest port and threatened the supply chain within the U.K. and much of continental Europe. There was no major economic data released in the Eurozone today.

GBP  

The British pound is slightly higher for the first time this week as trading conditions begin to thin out ahead of the Christmas holiday.  Negotiations between the United Kingdom and the European Union continue today in Brussels with fishing rights remaining the largest hurdle to a deal.  Without much progress to report, it is likely that if a deal is to be done it will happen next week and will not allow any time for all parties to ratify the agreement.  Despite this, the sterling remains relatively durable.

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