Dollar Gains for First Time This Week

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Dollar Gains for First Time This Week

After falling all week, the U.S. dollar is in positive territory for the first day in five.

Overview

The impressive risk rally has taken a breather with Asian equities slightly lower and European markets up a touch.  American stock futures are flat after the S&P rallied to record levels yesterday.

New tensions between the U.S. and China and a lack of any material progress towards a pandemic relief bill are being blamed for the pullback in risk appetite.  Optimism has been high this week that a last-minute deal can be struck.  Senate Majority Leader Mitch McConnel held a rare, positive tone when he said a deal “appears to be close at hand.” The Federal government’s funding dries up tonight so without a deal today, the chances of a shutdown will increase.

Pandemic relief and Brexit negotiations will continue to dictate trade.  We will keep an eye on today’s data, however, with the quarterly current account balance and November leading indicators set for release.

What to Watch Today…

  • No major events scheduled for today

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EUR  

The Euro followed the British pound lower against the U.S. dollar after both the common currency and sterling rallied to new highs yesterday.  The Euro remains elevated even as the Netherlands and Germany enact tough lockdowns as Covid spreads like wildfire across the continent.  Nevertheless, the economic data showed a decent expansion for German business climate sentiment which is a welcome sign for the bloc’s largest economy.

EUR/USD is likely to take its cues from developments surrounding a Brexit deal.  However, with negotiations expected to continue through the weekend, we might have a sleepy Friday session.

GBP  

The British pound has pulled back from the fresh 2.5-year highs made earlier during yesterday’s session.  Late yesterday Prime Minister Boris Johnson maintained that no deal remains the most likely scenario. Early this morning, EU’s chief Brexit negotiator Michel Barnier said that we are at “the moment of truth”  It feels as if this morning’s report could have been copied from earlier in the week as not much has changed.  The most recent (flimsy) deadline for an agreement is this Sunday.  The only sure thing for GBP/USD will be heightened volatility again today.

Aside from Brexit, the sterling took a hit this morning following comments by the Bank of England’s Vleghe said that negative interest rates could help the U.K. complete recovery. Economic data did not help the sterling despite consumer confidence and retail sales slightly beating already dour expectations.

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