Risk-on mood leads to lower dollar, higher stock and bond yields

Risk-on mood leads to lower dollar, higher stock and bond yields

Global stocks are higher and the US dollar is lower as investors embrace the ongoing risk-on mood in the markets. Upbeat news on Covid-19 vaccine deployment, hope for US stimulus from today’s Fed monetary policy announcement (2pm), and anticipation of a post-Brexit trade agreement drove market optimism. Both the euro and UK pound rallied to fresh two-year highs. US equities are opening higher and UST bond yields edged up. Oil and gold are little changed. Besides the Fed meeting today, traders await tomorrow’s policy decisions from the Bank of England and Friday’s from the Bank of Japan.

“The thing about democracy, beloveds, is that it is not neat, orderly, or quiet. It requires a certain relish for confusion.”
Molly Ivins, American columnist, author, political commentator
  • FX Rates
    December 16, 2020

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  • USD

    The US dollar index is lower by nearly 0.25%, weakening the most against the euro and UK pound. The risk-on/reflation trade is alive and well –stocks are higher, foreign currencies are higher and bond yields higher. US Retail Sales for November data released this morning was worse than expected. The Fed’s policy announcement is at 2pm today, and traders expect some fresh forward guidance from Chair Jerome Powell on its ongoing asset purchases (QE).


    The UK pound rallied to two-year highs on hope that a UK/EU post-Brexit trade deal will be reached before the year-end deadline. The GBP/USD reached $1.3554, the highest level since May 2018. EC President Ursula von der Leyen said that fishing rights is the remaining issue, adding “As things stand, I can’t tell you if there will be a deal or not.” UK PM Boris Johnson cautioned that the UK has a “natural right” to command its own waters.


    The euro rallied over $1.22 for the first time since April 2018. In addition to broad dollar weakness, the euro benefited from strong economic data out of the eurozone: EZ Manufacturing and Services PMI and Construction Output all expanded more than expected.


    The Canadian dollar was the only G-10 currency to decline versus the US dollar. Bank of Canada Governor Tiff Macklem commented that there is no exchange rate target for the BOC. Although that’s not really new, it seems to have been enough to drive some profit-taking after a month-long rally in the CAD.


    As a group, Asian currencies moved little overnight. The CNY, JPY, AUD and NZD all remained within 0.15% from last night’s NY close. Traders await the Bank of Japan’s monetary policy announcement on Friday, and no change is expected.

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Scott Petruska
Scott Petruska

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