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Currency Market Analysis

Jan 04, 2021 | Currency Market Analysis

Global Themes

A new year is underway but the same forces are weighing on the greenback which slipped to mid-2018 lows. Buoyant risk appetite boosted rival currencies as the euro surged more than 1% while the Canadian dollar climbed to its highest since April 2018. While broadly weaker, the U.S. dollar edged up from a May 2018 bottom against the U.K. pound. Vaccine optimism continues to run high which is overshadowing surging virus cases in the U.S. and elsewhere and bolstering confidence in a global economic reboot this year. The big negative for the dollar is that the Fed has vowed not to preemptively raise interest rates even if the economy gains a meaningful head of steam. The world’s biggest economy takes center stage this week with the December jobs report due Friday and forecast to show more signs of a flagging recovery. 


Sterling fell as expectations of tighter restrictions in Britain to put a lid on surging Covid cases outweighed optimism about Britain’s orderly exit from the EU. Britain and the EU struck a Christmas Eve trade pact that averted a disorderly exit on Jan. 1. While softer, the pound kept within reach of May 2018 highs against the otherwise weaker greenback. Britain dodging a messy split from the EU was a key factor behind the pound’s 4-cent appreciation, or 3% rise, in 2020.


Bullish sentiment pushed the euro higher on the year’s first trading day. Europe’s single currency soared more than 1% as it held aloft near its 2020 peak. The euro enjoyed double-digit appreciation in 2020 when it rose by 10 cents, or 9%, against its U.S. counterpart, reaching its highest since April 2018. Key for the euro this week will be euro zone data Thursday on inflation with slight deflation in the cards.


Buoyant risk sentiment supported commodity currencies, allowing the Canadian dollar to advance against its underperforming U.S. rival. Hopes that coronavirus vaccines would allow for a global economic reboot offered a shot in the arm to the loonie which strengthened by more than two cents, or 2%, against its U.S. peer in 2020. A spotlight will shine brightly on Canada’s job market this week with a report on December hiring on Friday forecast to contract by 25,000 after a gain of more than 60,000 in November.

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