Monex: Dollar weakened by absence of Senate vote on increase in US corona aid

30 december 2020

The dollar is weakened by the absence of the Senate vote on the increase in US corona aid. Below is a short English commentary by Ima Sammani, currency analyst at Monex Europe on the US dollar, the euro and the British pound.

USD

The dollar weakened further over the course of yesterday amid hesitant progress on US stimulus. This morning, the dollar’s decline ran somewhat out of steam against the euro and yen but extended losses vs GBP.

The broad weakening of the greenback came after Senate Majority Leader Mitch McConnell blocked an attempt by Democrats to force quick action increasing direct individual payments from $600 to $2000. Meanwhile, the new strain of Covid-19 appeared in the US for reportedly the first time, in Colorado, which may also weigh on the dollar.

For today, should policymakers refrain from announcing the long-awaited stimulus, or should virus conditions deteriorate, the greenback may take on some more water as the risks are isolated to the US economy, inhibiting the dollar’s safe haven appeal.

EUR

With data and economic event calendars being virtually blank this week, price action around the euro has been muted. The renewed lockdown measures over Q4 seem to be working, with the Netherlands and Germany having driven their daily case counts back to October levels after having reached record highs in December.

French President Emmanuel Macron met with the nation’s health council yesterday to consider whether or not to reimpose lockdown measures again, as the average number of daily cases has not fallen below the key threshold of 5,000 set by the government. The health minister updated the nation afterwards and announced there will be no new lockdown for the time being, although some of the worst-hit regions may face earlier curfews.

As the lockdown measures throughout the eurozone did not dent the euro in the first place despite dampening consumer and business sentiment, the medium term prospects for the euro look positive amid the environment of broad dollar weakness. The rollout of Pfizer/BioNtech vaccines across Europe will be the next major upcoming event in European markets.

GBP

Sterling’s rally yesterday chipped away at Monday’s losses as broad USD weakness remained a dominating dynamic in markets. With additional fiscal stimulus hopes in the US fading, the dollar remains under pressure again this morning. This has resulted in sterling rallying 0.3% at the time of writing.

GBP/USD is now back at the levels it opened Monday morning at, completely reversing its decline witnessed at the beginning of the week. Sterling’s rally comes at a time when the Covid-19 hospitalisation numbers surpass April’s peak in the UK, leading to many speculating that stricter measures will be imposed across more regions in the UK. The Times newspaper suggests that more regions could be placed into tighter restrictions as early as today.

This begs the question over when the next national lockdown is going to be embarked upon, in a “circuit breaker” type fashion. While this poses additional headwinds to the UK’s economic recovery, markets continue to look through it, especially with the AstraZeneca-Oxford vaccine gaining approval overnight.

In Brexit, Boris Johnson’s deal is set to garnish a Parliamentary majority in today’s vote after gaining the support of the ERG hardliner group yesterday. With Labour also supporting the deal, as it is considered a better alternative to a disruptive hard Brexit, this afternoon’s vote looks like a formality in what has been the downfall for many proposed deals in the past.