Dollar Rises For First Day in Five; Sterling Plunges
DECEMBER 07, 2020
The U.S. dollar is trading on the front foot this morning as global equities pulled back from record highs and the British pound came under heavy pressure as Brexit is pushed to the brink.
Overall, the greenback remains near multi-year lows versus a number of its counterparts, begging the question: has the dollar reached a bottom? Juan Perez, our senior FX trader, and strategist, tells Axios News that the weak dollar may be a “bit overdone”. Markets are looking past significant risks including possible hiccups with the rollout of vaccines, a hard Brexit, and others. One of these risks seems to be coming to a head as negotiators on both sides have thrown cold water on hopes of a Brexit deal this week.
Stateside, we will continue to watch for developments around a possible $908 billion covid relief package as hopes are elevated that Mitch McConnel and President Trump will come “on board.”
The safe-haven has also found some support as tensions between the U.S. and China have ticked up a touch. The U.S. is reportedly preparing to sanction at least ten Chinese officials over their role in the disqualifications of Hong Kong legislators.
With no major economic data on today’s schedule, we will continue to headline watch for developments in Brexit negotiations and on Capitol Hill.
What to Watch Today…
- Johnson and von der Leyen speak later today
Like many of its peers, the Canadian dollar is falling on general U.S. dollar strength this morning. The price of oil is also down a percent, adding pressure on the loonie. Nevertheless, USD/CAD is still close to its highest level since 2018. Except the pair to continue to trade with the prevailing risk sentiment ahead of the Bank of Canada interest rate meeting on Wednesday.
The British pound fell nearly a percent and a half overnight on risks that the Brexit talks could collapse. The single-day decline would be the pound’s worst day since September. Many had hoped that the EU and the UK would strike a deal over the weekend, but hopes were dashed. Officials on both sides have held dire tones, with one EU diplomat saying that the prospects for a Brexit trade deal are now “bleak.”
The thinking is that the next few hours will be critical. Prime Minister Boris Johnson is expected to speak with European Commission President Ursula von der Leyen later today. It may seem hyperbolic, but the discussion is being portrayed as a “make-or-break moment.” We will be glued to our Bloomberg terminals.