Home Daily Commentaries Soft start for the US dollar

Soft start for the US dollar

Daily Currency Update

USD - United States DollarThe US dollar continued to weaken throughout the close of 2020, softening against most of the major currencies. Most of the majors have benefited, including the euro, Great British pound, Australian dollar, and Canadian dollar. The impetus for the fall continued to be broader macro-economic in nature in the absence of any economic data. With the United States economy expected to falter in its recovery, COVID-19 still running rampant, political risks expected to rise and the Federal Reserve printing money, the US dollar finds itself under continued, sustained downward pressure.Despite the gravity weighing against USD, US manufacturing activity picked up at its briskest pace in more than six years in December, extending a recovery in the factory sector that has spurred the strongest pricing environment for goods producers since 2011 as the coronavirus pandemic upends supply chain networks. Still, IHS Markit’s final manufacturing purchasing managers’ survey of a rocky 2020, released on Monday, showed the sector’s rebound was uneven.

Key Movers

The recently agreed UK/EU trade deal means that the biggest risk factors and uncertainties are finally in the rear-view mirror and the pound is certainly taking advantage of this. Despite slipping oddly when the deal was struck on Christmas Eve, GBPUSD now finds itself at the rather giddy heights of 1.36. GBPEUR is also surging but its gains are slightly more modest and will remain to be so given the superb strength of the euro now (EURUSD 1.22).The Australian dollar ended 2020 breaking through yet another yearly high, peaking at 0.7741 before taking its foot off the gas for New Year’s Eve celebration. The Aussie opened 2021 slightly softer at 0.7709, but still amongst the top performers in 2020 after posting gains for seven consecutive weeks. It reached levels not seen since April 2018. With little on the economic calendar to drive momentum, the Aussie continued to trade primarily on the rapidly weakening USD, positive risk sentiment and COVID headlines. Moving into 2021, AUD is expected to continue the current trend with little on the economic calendar to digest to start the new year.

Expected Ranges

  • EUR/USD: 1.223 - 1.230 ▼
  • GBP/USD: 1.356 - 1.369 ▲
  • AUD/USD: 0.767 - 0.774 ▲
  • USD/CAD: 1.266 - 1.276 ▼