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Currency Market Analysis

Dec 01, 2020 | Currency Market Analysis

Global Themes

Wall Streeting signaling a bullish start to December kept the U.S. dollar on the defensive and near 2 ½ year lows. The euro and sterling hovered near three-month peaks while commodity currencies like the Aussie, kiwi and Canadian dollars rallied following more evidence of a strengthening Chinese economy. Today’s tone setters include a private gauge of Chinese manufacturing that grew at the fastest pace in a decade in November. The data came in the heels of China’s official factory growth survey Monday that expanded at the fastest rate in three years. Recovery optimism and risk-on sentiment have been the nemesis of the dollar this year, spurring many to step back from safer bets. Also in focus today are manufacturing numbers from the U.S. and the first of two straight days of testimony on Capitol Hill by Fed Chairman Jerome Powell.


The euro continued its two steps up, one step back pattern that kept it near three-month peaks. Euro longs, or bets on further strength, have left the single currency vulnerable to selling and profit-taking when it flirts with peaks for the year. The euro’s outperformance largely stems from dollar weakness. To be sure, European fundamentals suffered a setback in inflation sticking below zero for a fourth consecutive month in November which threaten to set off the deflation alarms and intensify already elevated pressure on the ECB to ramp up stimulus. 


A weaker greenback and stronger factory data from China buoyed commodity currencies with Canada’s rising toward two-year highs. The loonie cemented its gain after data showed the Canadian economy grew at a record annual rate of 40.5% in the third quarter which followed an historic plunge of 38.1% during the second quarter. The data, though, was still consistent with Canada’s economy moderating over coming months with a preliminary GDP data for October expected to slow to a 0.2% increase after a 0.8% expansion in September. 


Sterling steadied after an overnight rally above key resistance, its highest in three months. The buoyant pound is a sign that many are giving Brexit talks the benefit of the doubt in some sort of a pact being reached by the month-end deadline. Sterling also cheered news that U.K. manufacturing for November enjoyed a modest upgrade to 55.6.

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