The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
Sterling is struggling for support this morning, with GBP/EUR flat at €1.1071 and GBP/USD rangebound at $1.3580. GBP/CAD is subdued at C$1.7317, while GBP/AUD and GBP/NZD tumble to AU$1.7602 and NZ$1.8826, respectively.
Looking ahead, the spotlight today will be on the Georgia Senate runoffs, amidst hopes for more US fiscal stimulus if Democrats manage to win both seats.
What’s been happening?The pound came under significant selling pressure through the first day of trade in 2021, with GBP investors unnerved by the worrying rise in UK coronavirus cases and Boris Johnson’s warning that there could be ‘no question’ that tougher restrictions would be needed.
This proved to be no empty threat either, with the PM later announcing that the UK would enter a national lockdown.
The US dollar also trended lower through Monday’s European trading session, with the appeal of the safe-haven ‘Greenback’ weakening amid the positive mood at the start of 2021, particularly as polls point to a narrow lead for both Democrat nominees in the lead up to the Georgia Senate runoffs.
The broad weakness in the US dollar allowed the euro to start off the year with a bang thanks to the negative correlation between the pairing.
It was also enough to offset the announcement that Germany would be extending its national lockdown through to the end of January, and a weaker-than-expected manufacturing PMI, which may have otherwise dented the single currency.
What’s coming up?Centre stage today will undoubtedly be the Georgia runoffs, in which two key seats in the Senate will be up for grabs.
Should the Democrats secure both seats then we are likely to see the US dollar weaken as this would grant them then control over Congress and pave the way for the incoming Biden administration to implement a more generous stimulus package.
Also of note for USD investors will be the latest ISM manufacturing PMI, where an expected slowing of factory activity in December could also dent the US dollar.
In Europe, the focus this morning will be on Germany’s latest jobs report, where a potential rebound in employment growth may allow the euro to extend its bullish run.
Finally, with the UK now in another lockdown, we are likely to see the pound remain under pressure today amidst concern over how the new restrictions could hurt the UK economy.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)