US data & Fed kicks off 2021 amid soaring stocks and a weaker USD
2020 leads us into 2021 with one market concern (namely Brexit) off the table, only to be replaced by a raft of others, alongside soaring stock markets and plenty of global political uncertainty.
GBP: With a ‘deal’ signed, markets have breathed a sigh of relief that the disaster scenario of a ‘no-deal’ was averted. However, GBP is capped by the disastrous Covid-19 infection rate and seemingly confusing policy responses.
The main reason GBP ‘bulls’ didn’t rush to buy GBP is because the agreement fails to apply to the services sector, which comprises 80% of the UK economy. GBP/EUR 1month average is 1.1230, and the 3month average is 1.1250. Currently trading at 1.1140, the market nervously awaits any / all UK data and policy response to Covid infections.
EUR: Benefitting from USD weakness, but vulnerable to news regarding mixed policy-responses to Covid from individual nations – examples include Germany looking to extend lockdown measures beyond 10th January & France 6pm curfew in place with bars, cafes and restaurants very unlikely to reopen at the end of January. Varying speeds of vaccination roll-out and acceptance will dictate the fate of the EURO in 2021.
USD: Traded with a weakening trend into the end of 2020, and investors think this will continue. We will find out this week with 3 important releases:
Minutes of the last Federal Reserve meeting. These are expected to focus on Forward Guidance, keeping interest rates in the US lower for a longer period of time – undermining the USD.
Manufacturing data: Release of weak PMI data this week will serve to further weaken the USD, but a strong print could be mildly supportive when set in context of the roll-out of a vaccine.
Unemployment data: Released on Friday 8th – all-important, and closely watched. Analysts expect approx. 100k jobs to have been added to the US workforce, and variance either side of this reading will affect the USD.
The significance of a weaker USD can be seen from key levels: EUR/USD pushes higher to 1.2275 (last seen in mid-2018) USD/CAD at 1.27000 (not seen since mid-2018) AUD/USD at 0.7725 and GBP/USD at 1.3650 - both last seen in early 2018.
China: Caixan Manufacturing data was below expectations, but marked the 8th consecutive release showing expansion in the world’s 2nd largest economy. With a weaker USD, CNY is trading at 6.5000 for the 1st time since 2018, approaching the key 6.2500 level hit earlier in that same year. Asian currencies are predicted by MUFG to start 2021 strongly due to the relative cyclical outperformance of Asian economies during the COVID-19 crisis.