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Currency Market Analysis

Jan 05, 2021 | Currency Market Analysis

Global Themes

The greenback was subdued but above its lows thanks to renewed caution over the pandemic and Georgia’s senatorial runoff race. America’s dollar hovered above mid-2018 lows against the euro, sterling and Canadian dollar. Georgia’s runoff race represents the year’s first major test for markets. Risk assets could rally at the dollar’s expense if Democrats seize control of the Senate. But a split outcome today could momentarily alleviate downward pressure on the buck as it would keep control of the Senate in GOP hands. Meanwhile, market optimism has been tested by surging virus cases which is leading to new lockdowns, prompting some to question their great expectations for global growth this year. After the Peach State’s elections, focus will shift to America’s job market. Nonfarm payrolls are forecast to slow for a sixth time in as many months in December.

EUR

The euro hovered below the fresh peak it revisited on the year’s first trading day as caution prevailed ahead of Georgia’s election runoff. Downside for the euro was limited as German data tempered growth concerns. Retail sales surprised to the upside with a nearly 2% jump in November compared to forecasts of a 2% contraction. German unemployment steadied at 6.1% in December. A potential threat to the euro’s upturn is the surge in Covid cases that risks lengthier lockdowns that could undermine the bloc’s recovery.

CAD

The loonie maintained an edge against the greenback as the price of oil rose more than a percent to above $48. But Canada’s dollar surrendered a cent from April 2018 highs amid caution ahead of Georgia’s big senate runoff race today that will set the tone for President-elect Joe Biden’s legislative agenda. Caution also reigned ahead of Friday when Canada issues its monthly jobs report that’s forecast to show hiring contracted for the first time since last spring. Forecasts suggest Canada bled 27,500 jobs in December which likely nudged unemployment up to 8.6%.

GBP

Sterling shed more than a cent from 2 ½ year highs as a highly contagious new strain of the virus led Prime Minister Boris Johnson to impose fresh growth-dampening lockdowns. Moreover, the pound’s Brexit-inspired surge left it ripe for a bout of profit-taking. The pound would be at risk of a further pullback if data tomorrow on Britain’s economy-driving services sector should contract more than expected, a scenario that would underscore the economy’s vulnerable shape. 


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