Daily Market Update

Dollar Gives Back Recent Gains on Stimulus Hopes

October 19, 2020

The U.S. dollar enjoyed a bout of strength during the second half of last week as stimulus and Brexit negotiations stalled and global Covid cases spiked, causing equities to slip and the dollar to gain as a safe haven. 

Overview

However, the dollar is under heavy pressure to start the week as risk appetite has turned around.

In Washington, both President Trump and Speaker Nancy Pelosi sound optimistic that a stimulus deal could be reached within 48 hours.  Pelosi has set Tuesday as a deadline for a deal to be struck to give her chamber time to vote on the deal. Senate Majority Leader Mitch McConnel said he “would of course consider” any proposal but the Leader has thrown cold water on possible deals in recent months, so his actions are worth watching.

Federal Reserve chief Jerome Powell is speaking at the time of writing, but the market has largely shrugged off his comments so far.  There are five other Fed speakers on today’s docket.  No top tier data is slated for release today.

 

What to Watch Today…

  • Six Fed speakers throughout the day

View this month’s Economic Calendar

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NZD 

The Euro, New Zealand dollar, and the Norwegian krone were among the currencies that were able to take advantage of an uptick in risk sentiment.  China reported that its economy grew 4.9% in the third quarter, boosted by strong consumer spending.  Strong Chinese factory output and retails sales set the tone for risk-on day, pushing the greenback lower.

The New Zealand dollar got an added boost after New Zealand Prime Minister Jacinda Arden won a historic, blow out reelection.  She now has a mandate to rebuild the economy, adding to the kiwi’s gains.

 

GBP 

The British pound has popped nearly a percent higher against the U.S. dollar to start the week.  It appears Prime Minister Boris Johnson will “water down” his “controversial international law-breaking legislation” on Brexit in order to get a deal with the European Union.  The controversial U.K. Internal Market Bill attempts to rewrite part of the Brexit withdrawal deal he struck with the E.U. last year.  The move created ill-will which has been an obstacle for negotiators.  GBP/USD obviously remains subject to headline risk as seen overnight where the pair moved one percent on speculation.

European parliament meets at the end of November and will have to ratify any deal agreed by EU leaders.  December 31st marks the end of the Brexit Transition period, an immovable deadline.  If a deal is not ratified by then, Britain will default to trading on World Trade Organization terms, which would spell disaster for their economy.

 

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