Risk Rallies; Dollar Falls to 2.5 Year Lows

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Risk Rallies; Dollar Falls to 2.5 Year Lows

DECEMBER 14, 2020

The risk mood is positive to start the week as a number of developments over the weekend caused global stocks to rally. 

Overview

The rise in risker assets again comes at the expense of the greenback, which is nearly half a percent lower today.  The dollar’s drop puts the Bloomberg Dollar Index at fresh 2.5-year lows.  The first deliveries of the Pfizer-BioNTech SE vaccine are expected to arrive this morning, a most welcome sign!  There is also renewed optimism over a smaller pandemic relief bill can be passed before the end of the year.  A bipartisan group of lawmakers will lay out their proposal today.

The Electoral College is also set to vote today to confirm that Joe Biden won the election and will take office next month.  Congress will count the votes and declare the winner on January 6th.

Today’s economic docket is a clean slate, so expect currency markets to take their cues from developments on Capitol Hill and perhaps a breakthrough on Brexit.  Traders will also begin to position themselves ahead of the Federal Reserve’s meeting on Tuesday and Wednesday.  We are expecting to hear fresh guidance on the bank’s current easing plan, but we still do not expect higher interest rates for years to come.

What to Watch Today…

  • Lawmakers unveil bipartisan relief package

View Economic Calendar

Read the latest currency outlook from our award-winning trading team…

Currency Outlook

EUR  

The Euro is enjoying the risk-on mood today and has pushed 0.4% higher against the U.S. dollar. The Euro Stoxx 600 Index added 1% value today even as the bloc’s largest economy announced new, “hard” lockdowns for the holiday season.

Germany announced that as of this Wednesday, all non-essential shops, services, and schools will close until January 10, and Christmas Day gatherings will be reduced from 10 people to five from two different households.  While the lockdown will no doubt hurt the European economy, market participants are looking into the future which seems brighter with the arrival of Covid-19 vaccines.

GBP  

The British pound is in rally mode, rising as much as 1.5% against its American counterpart despite the lack of a definitive deal.  Bloomberg’s Five Things said it best and made me chuckle so I will steal their words: “To the surprise of almost nobody, Sunday’s Brexit talks deadline passed without a deal, and without the end of talks.”

Indeed, Prime Minister Boris Johnson and European Commission President Urusla von der Leyen pledged to “go the extra mile” to get a deal done.   The mood was lifted further after EU’s chief negotiator Michel Barnier told da private meeting of ambassadors that a deal could be reached this week if a compromise is reached on fishing.

The 1.5% rally for sterling is its best intra-day move since October 21.  One percent range trading became the new normal last week and it looks to continue for the foreseeable future.

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