Dollar Slides as Equities Rise
The U.S. dollar is under broad pressure to start the new quarter this morning.
Risk-on trading looks to be on again today on renewed hopes Congress can agree to a fiscal stimulus package. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi are set to meet again today to hammer our a stimulus bill that will satisfy both sides of the aisle. The pressure is increasing on lawmakers as major companies are announcing large layoffs, including 32K jobs in the airline industry. We long thought a fiscal stimulus bill would have been a slam dunk by late-summer. Fool me once. We won’t hold our breath this time around.
The dollar is having a muted reaction to this morning’s mixed data. Initial jobless claims fell to 837K, better than the 850K expected. This represents the lowest reading since the beginning of the pandemic, but we are still far from normal, expansionary economy levels.
A separate report showed a slowdown in personal consumption. Personal spending rose 1.0% month over month in August, slightly better than expected. But July’s print was downwardly revised from 1.9%, to 1.5%. Personal income fell by 2.7% in August as government fiscal stimulus dried up.
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USD/CAD experienced choppy trading conditions as well. The loonie is modestly extending yesterday’s rally, adding 0.3% overnight. The Canadian dollar is now at its strongest level since September 21 versus the greenback. The pop in CAD comes even as the price of oil trades over 1.5% lower, indicating the move might be more U.S. dollar weakness, than loonie strength.
The British pound experienced a wild ride overnight, initially falling over a percent before regaining all of its losses. News broke that the European Commission will send the U.K. a “letter of formal notice” today claiming the UK are breaking their terms of the Withdrawal Agreement. News of the start of the legal process sent the sterling sharply lower.
However, the sterling made a quick turnaround after the Financial Times reported that a “landing zone on state aid has been identified.” The mood of the talks is said to be “cautiously optimistic.” The end result of the see-saw ride is that GBP/USD has opened today almost unchanged from yesterday’s close.