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Currency Market Analysis

Jan 06, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar sank to fresh lows as Democrats appeared close to running off with a pair of wins in Georgia’s Senate race. The greenback flirted with three-year lows against the euro, sterling and Canadian dollar, while it hit a six-year bottom against the Swiss franc. Down Under, both the Aussie and kiwi dollars notched March and April 2018 peaks, respectively. The media declared Democrat Raphael Warnock the winner against his incumbent Republican rival Kelly Loeffler. The race for the other Senate seat was still too close. The still open door for Democrats to seize control of Congress is considered market-friendly and dollar negative, as could set the stage for bolder stimulus to boost a vulnerable economy. Pressure on the dollar could abate, though, if the near-term economic risks overshadow optimism about a vaccine- and stimulus-driven recovery. ADP reported today that private employers unexpectedly shed 123,000 jobs in December.


Largely mirroring oil markets, the loonie pared gains after rolling overnight to new April 2018 peaks against its U.S. counterpart. Oil overnight topped $50, boosted by a surprise move by Saudi Arabia to unilaterally slash production to help keep a floor under prices. Broad-based greenback weakness continues to underpin a wide range of currencies and commodities. Canada’s December jobs report on Friday may serve as a litmus test of loonie sentiment. The market is girding for weakness with forecasts of a loss of 27,500 jobs and an uptick in unemployment to 8.6%.


Sterling failed to capitalize against the otherwise weaker greenback as domestic headwinds continued unabated. Soaring Covid cases and fresh lockdowns have further darkened already dim growth prospects, keeping the door ajar for the Bank of England to deploy negative borrowing rates. A report today on Britain’s dominant services sector was downwardly revised to 49.4 in December, a quicker pace of contraction.


The euro was peachy keen after Georgia’s election as it powered above resistance to fresh April 2018 highs. The weak dollar overshadowed disappointing services growth from Germany and the wider euro bloc, as both PMIs were revised further below 50, contractionary terrain. A key test of euro sentiment arrives Thursday when the bloc issues preliminary inflation data that’s expect inch up to a still-deflationary minus 0.2% in December.

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