Dollar Slips Even as Stocks Falter; Sterling Drops Again

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Dollar Slips Even as Stocks Falter; Sterling Drops Again

DECEMBER 10, 2020

The U.S. dollar was mostly flat overnight, except for another wild ride versus sterling.

Overview

However, the greenback is under new pressure this morning even after the European Central bank added to and extended its fiscal stimulus program.  The greenback slipped to its weakest level since 2018 against the Canadian dollar and Australian dollar.

Higher risk sentiment cannot be blamed for the dip in the greenback, however.  U.S. equity futures are slightly lower today as bickering and finger-pointing continue on Capitol Hill.  The dueling aid packages are fairly close in size at just over $900 billion dollars but there remain large disagreements over the contents.  Time is running short ahead of the holidays and hopes will dim with each passing day.

This morning’s economic data showed more warning signs for the American economy.  Weekly jobless claims jumped to 853K, which is 137K higher than the week before.  Continuing jobs claims also rose by 230K last week, breaking a long streak of lower weekly readings.

Inflation data showed that consumer prices rose 0.2% in November after a flat reading in October.  Year over year, CPI is up 1.2% which is well below the Fed’s target.  The Federal Reserve has said it expects to hold rates near zero for years to come.

What to Watch Today…

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Currency Outlook

EUR  

The Euro saw an initial pop higher against the U.S. dollar early this morning after the European Central Bank increased its bond purchasing plan.  The ECB added 500 billion euro to its pandemic program and extended the program by an additional nine months.  This means the pandemic purchase program will now extend to at least March of 2022.  The move was widely expected, so the initial move higher for Euro may be short-lived.

The ECB also kept interest rates unchanged and maintained their negative deposit rate. ECB President Christine Lagarde is due to speak momentarily, and her comments may have more weight than the headline decision.

GBP  

Another day, another1+% move for GBP/USD.  Sterling fell versus the U.S. dollar and against all its other majors as recent efforts to get a post-Brexit trade deal past the goal lines have failed.  The optimism surrounding the deal seems to change faster than the London weather.

The mood is dark today with many officials signaling they no longer think a deal can be done.  The supposed deadline for a deal has been moved again, this time it’s this coming Sunday.  One deadline that cannot be moved is December 31st, the day the U.K. would crash out of their current trade terms and fall under WTO rules which would spell disaster for their economy.

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