The U.S. dollar had a mostly quiet night, only slipping modestly.
Overview
The risk mood in the States is a touch brighter today as stocks look to have their first positive day after falling for the previous four. The rollout of a vaccine has provided a bit of a spark today even as the death toll increases and parts of the country brace for another lockdown. New York appears on track for a second full lockdown as the total death toll in the United States reached the grim 300K mark.
This morning’s optimism is likely fragile and dependent on progress on a Covid relief bill. Most expect today to be consequential in determining whether Democrats and Republicans can inch closer to a deal with the deadline for a government funding package needed by the end of the week. It is our belief that the odds have shifted away from a $900 billion package to a smaller $748 billion proposal that leaves out the bigger sticking points between the two sides.
The modest package would be a boost to risk and come at the expense of the greenback. However, if Congress fails to yield results, the greenback could be the short-term beneficiary.
This morning’s economic docket includes Empire State manufacturing and import/export prices at 8:30 a.m. and industrial production at 9:15 a.m. The Federal Reserve will conclude its two-day meeting tomorrow afternoon.
What to Watch Today…
- Industrial Production at 9:15 a.m.
Read the latest currency outlook from our award-winning trading team…
EUR ⇓
The EUR/USD is bouncing between gains and losses this morning and the pair appears to be trading without a definitive direction. The outlook for the European economy continues to dim. As reported yesterday, Germany will implement a hard lockdown tomorrow. It now appears that the Netherlands and Italy will follow suit. Nevertheless, the Euro remains near its two and a half year high against the U.S. dollar and has shown little signs of cracking.
GBP ⇑
The British pound sterling rose for a second day but was much less volatile overnight than in recent sessions. GBP/USD rose by only 0.4%. The pound is up for a second straight day as both the U.K. and the E.U. continue to bang their heads on the wall to come up with a deal. Today’s sterling strength is a little surprising considering that U.K. Prime Minister Boris Johnson told his Cabinet that a no-deal remains the “most likely” outcome.
Markets appear to believe negotiators can still thread the needle at this late date. Today’s lower volatility is likely an outlier, however. The 1.5% rally for sterling is its best intra-day move since October 21. One percent range trading became the new normal last week and it looks to continue for the foreseeable future.
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