Risk-on mood continues, dollar lower, equities higher
The ongoing risk-on mood in the markets continues to be driven by upbeat news on the fiscal stimulus package and vaccine deployment. The “reflation” trade dominates market behavior – higher equities (particularly emerging markets), a lower dollar, and higher commodity prices and currencies. Only bond yields did not follow the script, as they were unchanged overnight. The US Dollar Index (DXY) dropped below 90 for the first time since April 2018. Initial jobless claims unexpectedly climbed to the highest level in three months.
December 17, 2020
EUR/USD 1.2251 GBP/USD 1.3591 USD/CAD 1.2702 AUD/USD 0.7627 USD/JPY 102.9600 USD/CNH 6.5107 USD/ILS 3.2450 USD/MXN 19.7987 USD/CHF 0.8842 USD/INR 73.5875
The dollar is broadly lower, especially against “commodity” EM currencies. The popular dollar index (DXY) is trading below its 90 level for the first time since April 2018. A lower dollar is in line with the current risk-on mood in the markets, which is driving higher “risky” assets, including foreign assets and currencies (even risky Bitcoin soared, reaching a record $23,000). Yesterday, Fed Chair Powell said he will continue to support the economy (low rates for longer), but signaled, as he has in the past, that fiscal stimulus is necessary. Traders are hoping that Congress will pass a stimulus package within days.GBP
The UK pound reached $1.36 overnight, its highest level versus the dollar since May 2018. Hopes that a post-Brexit trade deal will be agreed before the December 31 deadline is driving the rally. EU chief Brexit negotiator, Michel Barnier, said that talks are progressing, but warned that “last stumbling blocks remain.”EUR
The euro trades well above $1.22, in-line with a broadly lower US dollar and hopes that the massive EU relief fund will support a strong economic recovery.CAD
The Canadian dollar edged higher versus the US dollar, but gained the least compared to its G-10 peers. USD/CAD at 1.27 seems to be providing support, as its held three days running.ASIA/PACIFIC
The USD/Japanese yen currency pair dropped below 103.00 for the first time since March. The yen has trailed most other G-10 currencies, along with market chatter that investing in JGB’s this year has been the biggest money loser for bond traders.
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