Dollar Recovers as Stocks, Sterling Falter
OCTOBER 13, 2020
The U.S. dollar experienced downward pressure yesterday as American traders enjoyed a long weekend.
The dollar’s weakness is taking a breather this morning as risk tilts slightly lower on the news that Johnson & Johnson’s Covid-19 vaccine study was paused due to an unexplained illness in a participant.
Equities rallied yesterday and the dollar floundered on widespread optimism that a stimulus deal could be reached soon. Prospects of a quick deal seem to be fading today as many Senate Republicans have issues with the White House proposal for the deal.
This morning’s consumer price index data will show that inflationary pressures remain well below the Federal Reserve’s target of 2.0%. The Fed’s Richmond President Thomas Barkin and San Francisco President Mary Daly will speak this afternoon.
Bank earning’s season is in full swing on Wall Street this morning which could help set the tone for the general risk sentiment, and hence, the direction of the greenback.
What to Watch Today…
- CPI at 8:30 a.m.
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The Euro dipped lower this morning, mostly on a mild resurgence of dollar strength on risk aversion flows. However, the data we did get was not flattering. Germany’s ZEW economic expectations survey registered at 56.1, showing a sharp decline from the 72.0 expected by economist and represents a five-month low.
Perhaps the survey should not be a surprise as Germany is facing fresh Covid-19 worries. Indeed, covid cases in Europe’s largest economy are rising at their fastest pace since April.
The British pound is in the midst of a modest sell-off this morning as Brexit pressure comes to a head. U.K. Prime Minister Boris Johnson set a deadline of this Thursday to hammer out an outline of a European Union trade deal.
We have long said that October 15th would be the drop-dead date. A slew of headlines and comments from officials are driving the sterling lower this morning. A British official is quoted as saying “The EU has been using the old playbook in which they thought they running down the clock would work against the U.K..” He or she continued that “time is now extraordinarily short.”
GBP/USD dropped 40 basis points in the seconds after that headline, showing how prone the sterling is to headline risk