New stimulus talks in Washington leave markets searching for next trends
Global investors closed short dollar positions causing a rally in the dollar after news the US Congress will again take up stimulus discussions. At the same time, FX markets are on edge awaiting any news of a UK/EU trade agreement with every headline pushing the pound and euro. The Swiss franc hit its strongest level versus the US dollar since January 2015 as speculators continued to place bets on a weaker dollar.
“It is December, and nobody asked if I was ready.”
December 2, 2020
EUR/USD 1.2078 GBP/USD 1.3304 USD/CAD 1.2940 AUD/USD 0.7364 USD/JPY 104.57 USD/CNH 3.5635 USD/ILS 3.2901 USD/MXN 20.1140 USD/CHF 0.8963 USD/INR 73.8050
Yesterday Fed Chair Powell stressed again the importance of fiscal stimulus to support the recovering US economy. FX speculators have been short the dollar most of 2020, but now face concerns vaccines will take well into 2021 before offsetting surging Covid cases. The uncertainty helped the US dollar versus most currencies; however, many FX market practitioners see a continuing weak dollar trend through 2021.GBP
The British pound sank despite UK regulators approving the Pfizer and BioNTech vaccine. Concerns surrounding the UK/EU trade negotiations will cause the pound to be extremely volatile over the coming days.EUR
In European trading, the euro hit its strongest level since April 2018 (1.2088) before profit taking took over. A key technical resistance at about the same level caused FX speculators to take profits on the common currency.CAD
The Canadian dollar is weaker on renewed fears of Covid’s impact on the Canadian economy. The Canadian dollar had performed well on stimulus spending plans by PM Trudeau’s government.ASIA/PACIFIC
The Australian dollar is flat after Q3 GDP came in at 3.3% growth versus the 2.5% expected. However, the AUD was held back due to a China-Australia diplomatic spat which has been escalating for months.
The Chinese renminbi is slightly weaker after Biden said existing tariffs on Chinese goods will remain in place until his administration can review trade with China in detail. The renminbi had been rallying in part on expectations a Biden presidency will be less volatile toward China.
For more analysis on FX markets or information regarding SVB's FX services:
See all of SVB's latest FX information and commentary at www.svb.com/trends-insights/foreign-exchange-advisory
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