Dollar in Rally Mode as New Covid Strain Rattles Markets

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Dollar in Rally Mode as New Covid Strain Rattles Markets

DECEMBER 21, 2020

The U.S. dollar is in rally mode to start the week, gaining against all of its major counterparts except the Japanese yen. 

Overview

A new strain of coronavirus reported in the U.K. was more than enough to drag on market sentiment even as Congress agreed to a pandemic relief bill.

In a welcome sign, lawmakers are set to vote today on a $900 billion pandemic relief package that will include small direct payments to the majority of Americans.  The White House has indicated that President Trump will sign the bill.  Analysts are quick to say that the package was already “baked in” to the strong move in equities over the last month and a half which is why the news is taking a backseat to the new coronavirus strain.  Indeed, much of the losses in American futures and European equities are in travel, leisure, and energy stocks.

The economic docket is light today with only the Chicago Fed National Activity Index for November due out.  With a holiday-shortened week, jobless claims, durable goods, and personal income will all cross the wire on Wednesday morning.

What to Watch Today…

  • No major events scheduled for today

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CAD  

The Canadian dollar and other commodity-based currencies are in a relative free fall this morning.  The loonie lost as much as 1.3% overnight, the biggest intraday fall since June 11th.  Riskier assets are on the decline overall, but the commodity-backed currencies are feeling extra downward pressure as the price of oil slipped over 3%.

Canada’s Prime Minister Justin Trudeau’s government suspended flights between Canada and the U.K. for 72 hours, highlighting how the new virus strain and its consequences are having an effect outside of Europe.

GBP  

The British pound plunged over 2% against the U.S. dollar and is reeling against all of its major counterparts.  The U.K. government announced that they have discovered a new, mutant strain of the coronavirus that is more easily transmitted from person to person.  The U.K. has locked down London and the surrounding regions and many European countries have banned planes and ships to and from Great Britain. Dover, Britain’s largest port, has stopped all traffic heading to mainland Europe, threatening the supply chain.

Let’s also not forget that a post-Brexit deal is still not agreed upon, adding to the messy situation.  The most recent deadline for a deal has come and gone and the European Parliament has now warned it will not have time to ratify a deal by the end of the year.

If the move holds, it will be the sterling’s worst day since the beginning of the pandemic.

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