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Impeachment limits US dollar gains

USD - United States Dollar

The US dollar was range bound against its major trading partners yesterday while the House of Representatives argued for and against a second impeachment of President Donald Trump.

The dollar’s slight advance yesterday was attributed to a dip in equity markets. The slight drop pushed investors into the safe-haven USD. With Democrats now holding an effective majority in both houses of government, the US government is expected to increase its COVID-19 relief. A substantial stimulus platform could help add further upside support for USD through the worst of the pandemic and prompt a shift in the medium-term outlook as a cushioned recession should run into a quicker recovery post pandemic. That said, as sentiment continues to drive demand, a surge in appetite for risk led by equities could benefit commodity currencies and emerging markets. With price action faltering we are keenly watching direction through the next 24-48 hours as a possible marker of changes in the underlying narrative.

Key Movers

The UK continued to look outside the box for medication to combat COVID-19, despite already vaccinating over 2.5m people. The story broke that certain companies are looking to replace the COVID-19 jab with a pill. This would allow for far quicker distribution and allow those with fears of needles to obtain the vaccination. Once this is cemented, it is likely the pound will strengthen, as investors look to economies without the economic burden of COVID-19. For the moment, the pound remains steady. However, with no rate cut on the horizon and the burden of a lockdown already priced into the British economy, there is little that can further knock the British currency.

The Australian dollar retreated through trade on Wednesday, drifting below 0.7750 as bond yields and equities fell and hopes for additional US fiscal stimulus drove US dollar gains. Having touched intraday highs at 0.7780, markets largely ignored a strong uptick in job vacancies despite the run-on implications for a sharp correction in unemployment rates and upward inflation expectations. Instead, markets looked to a fall in oil prices and commentary from Fed officials suggesting loose monetary policy will be tapered as the Fed moves nearer to its economic goals.

Expected Ranges

EUR/USD: 1.211 - 1.217 ▲

GBP/USD: 1.361 - 1.369 ▼

AUD/USD: 0.773 - 0.778 ▼

USD/CAD: 1.264 - 1.271 ▼