Currency Market Analysis

Dec 08, 2020 | Currency Market Analysis

Global Themes

The greenback stabilized while the U.K. pound remained volatile. The euro, yen and Canadian dollar were little changed. The buck has enjoyed tentative stabilization as sterling fits itself on the market hot seat. Brexit angst is gnawing anew at the pound as the UK and EU struggle to clinch a post-Brexit trade agreement. The latest Brexit developments cast doubt on even a limited trade pact being reached ahead of the year-end expiry of the transition phase. Meanwhile, Wall Street appears to be catching its breath after successive rallies to all-time highs. Moreover, the market can only seem to outrun rising virus cases for so long. Still, underlying greenback sentiment remains poor given expectations for Washington to deliver stimulus while deployment of a vaccine has helped to brighten the outlook for global growth.

GBP

Sterling rode a Brexit seesaw as it pared declines on reports that the EU and UK may be nearing a deal in principle on a post-Brexit trade agreement. The pound has whipsawed in recent days as it appeared that talks were on life support. Any agreement that avoid a messy split at the end of the year and dodges tariffs would be pound-positive and all but close the door to the specter of the UK adopting negative interest rates. If a trade pact indeed it reached, it would still need to be ratified by their respective parliaments. 

CAD

Canada’s dollar was little changed after an overnight bounce to fresh 2 ½ year highs. Wall Street and oil markets were a bit subdued which limited appetite for commodity assets. The loonie may keep to the range on the eve of the Bank of Canada’s final policy decision of the year. The BOC has already pledged to maintain low interest rates of 0.25% for years to coming, putting the focus on the tone of its statement and any remarks on C$ appreciation which amounts to a headwind on Canada’s commodity-geared economy.

EUR

The euro steadied below recent 2 ½ year peaks as caution increased ahead of the ECB’s final policy meeting of the year Thursday. Mixed data from Europe largely offset to leave the single currency little changed. On the bright side, Germany’s influential ZEW survey of investor confidence improved more than expected to 55 in December from 39 in November, boosted by hopes that a vaccine would soon arrive and put the bloc’s biggest economy on a stronger path to recovery. Euro zone third quarter growth got revised down a tick to 12.5%, still good for the fastest growth on record. 


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