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Currency Market Analysis

Dec 18, 2020 | Currency Market Analysis

Global Themes

Please note that the Daily Market Update will not be published from December 24, 2020 to January 3, 2021, we will be back on January 4, 2021 .

The greenback stabilized off its lows as market exuberance ebbed. Sterling, down 0.5%, led the majors lower as doubts resurfaced about a Brexit deal. The euro and the Canada dollar eased off 2 ½ year peaks. The market is getting restless as it waits on Washington to agree on bold stimulus to keep a moderating recovery on track. Across the pond, the latest Brexit developments have highlighted that differences over a trade deal remain which is keeping alive prospects of a disorderly no-deal outcome. The dollar is catching a bit of a break Friday but underlying sentiment remains bearish. The theme of an underperforming dollar looks set to stretch into 2021 after the Fed this week vowed not to rollback its low rate policies even if the economy accelerates as it anticipates.


Brexit officials emphasizing that differences remain and that the path to a trade agreement is narrow tugged the pound below its peaks for the year. An air of optimism over Brexit negotiations earlier this week had thrust the pound to 2 ½ year highs against the greenback. Downside for sterling was slowed a bit by U.K. retail sales whose 3.8% fall last month stopped short of forecasts of a deeper decline. Any downside risk for the pound in the event of a no-deal Brexit could be mitigated by the weaker dollar.


The Canadian dollar weakened Friday but was little changed for the week and showed little reaction to more news of a resilient consumer. Canadian retail sales slowed to an increase of 0.4% in October from a more than 1% increase in September. Forecasts had called for consumer spending to eke out a 0.2% gain. While better than expected, retail sales are forecast to slow further in November as the pandemic tightens its squeeze on economic activity. The last major look at the Canadian economy for the year arrives with a Dec. 23 report on October growth. Flash forecasts call for growth to moderate to 0.2% from September’s increase of 0.8%. Any disappointment next week would keep alive the chance of a “micro cut” in interest rates from historic lows of 0.25%.


The euro’s latest pop to 2 ½ year highs encountered some end of week profit-taking that nudged it lower. But momentum behind its upturn suggests somewhat shallow pullbacks that could invite fresh buying a better levels. Euro bulls were emboldened this week by reassuring data from Germany as factory growth surprised to the upside as did today’s Ifo survey of corporate confidence.

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