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Currency Market Analysis

Dec 11, 2020 | Currency Market Analysis

Global Themes

The saying “every dog has its day” applied the greenback which was stronger Friday and on pace for its first weekly gain in four weeks. The euro and Canadian dollar fell while another Brexit-induced plunge knocked the U.K. pound to four-week lows. The buck has been dogged of late by a mix of optimism over stimulus and vaccines that are expected to put the world economy on a durable path to recovery. That optimism was in shorter supply Friday as U.S. lawmakers continued to haggle over more pandemic relief. Across the Atlantic, meanwhile, fears increased about a potential imminent collapse in Brexit talks that could hasten a chaotic split between the U.K. and EU in three weeks.


A pullback in investor confidence nudged the Canadian dollar below 2 ½ year peaks. The loonie scaled April 2018 highs against its U.S. counterpart this week after the Bank of Canada left interest rates unchanged at 0.25%, a record low, and didn’t flag currency appreciation as a major economic headwind. Oil keeping near 9-month highs reached this week at $47.74 signals a solid floor under the loonie. Canada issues influential indicators next week on inflation (Wednesday) and retail sales (Friday).


Currency players ditched the pound Friday, fearing it could be markedly cheaper if Brexit talks completely collapse over the weekend. Sterling tumbled back into a year-to-date hole against the greenback and plumbed its lowest level in four weeks. Two words that could prove posturing or prophetic rocked the pound when British Prime Minister Boris Johnson said Thursday that there was a “strong possibility” of a no-deal Brexit if he and his EU counterparts can’t forge an agreement on their new relationship that begins on Jan. 1. Even without Brexit, next week looms colossal for sterling with the Bank of England headlining a week in which big numbers on unemployment, inflation and retail sales come due.  


Risk-off sentiment dominated Friday, leading the euro to squander an ECB-inspired gain. Still, the single currency remains less than a cent from 2 ½ year peaks after the ECB’s fresh wave of stimulus stopped short of what some had anticipated, while policymakers were acquiescent for now on euro appreciation. While the euro’s broader prospects remain bullish it would likely need to close above its recent peaks to sustain its rally over the short run.

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