Daily Currency Update

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Dollar bounces back to start week

USD - United States Dollar

Demand for the US dollar rebounded this morning after USD tracked lower through last week.

Last week, President Joe Biden signed a series of executive orders and memorandums reversing Trump era policies and enacting immediate change across immigration, climate change, racial equity, and pandemic response. Equity markets, and the willingness to invest in stocks, remained an important driver for near term USD direction. USD struggled to strengthen last week. Treasury Secretary Janet Yellen said that the administration would not roll back the 2017 tax cuts. The Federal Reserve, which we’ll hear from this week, was committed to accommodative monetary.

Key Movers

We expect the euro to remain range bound as the market theme remains relatively consistent. With near term pressure on the USD there is some scope for euro upside, however we believe the single currency will struggle to push back toward December highs above 1.23. Growth across Europe continues to lag the US and with lock downs across the continent likely to be extended there is little hope the Eurozone will see any near-term relief of growth concerns. Further divergence in expectations could see the Euro soften through Q2 and into the end of H1.

The GBP remains supported by the ongoing risk narrative; however recent data sets suggest the economy has been hit heavily by the third lockdown. December retails sales and January PMI’s both fell short of expectations and out expectations turn to unemployment and weekly earnings data Tuesday for a better insight into broader economic health. COVID has brought the UK health system to its knees and further evidence the economy is faltering could prompt a swift correction for Sterling. With restrictions now expected to be in place until the European summer the pound remains increasingly vulnerable to swings in risk demand.

The Australian dollar crept lower through trade on Friday, yet still held onto gains above 0.77 US cents as risk assets remain elevated. Sentiment skewed to the upside last week as the promise of ongoing US fiscal stimulus, no major changes in tax policy and a commitment to QE from the Fed all helped support the risk backdrop and promote expectations for a medium-term recovery. Having faltered on approach to 0.7780 the AUD found support on moves approaching 0.7705 edging marginally higher in to the close to open the week at 0.7720 US cents.

Expected Ranges

EUR/USD: 1.211 - 1.218 ▲

GBP/USD: 1.365 - 1.372 ▲

AUD/USD: 0.768 - 0.774 ▲

USD/CAD: 1.268 - 1.276 ▲