US dollar steady ahead of US holiday

US dollar down slightly in Asia

Overnight the US dollar consolidated on forex markets, with the dollar index almost unchanged at 92.75. Amongst the major currencies, the Japanese yen retraced some of its losses, USD/JPY easing to 105.35 overnight, and dropping further to 105.10 this morning. The sterling continues to outperform, rising 0.80% to 1.3280, after a partial defeat of the Government’s Markets Bill and expectations that a European trade agreement will occur. The large number of Pfizer vaccines booked by Boris pre-year-end may also be lifting spirits and giving a boost to the pound.

US dollar likely to trade quietly in holiday-thinned market

Although the US holiday today will mute volumes, the dollar is retreating modestly in Asia, with the dollar index falling to 92.65. Commodity currencies are notable outperformers. The AUD/USD has risen 0.35% to 0.7310, while the NZD/USD has jumped 1.0% to 0.6890 after the Reserve Bank of New Zealand left interest rates unchanged this morning at 0.25 per cent. At a time where stock markets are more cautious, currency markets appear content to continue the move into pro-cyclical currencies, after the US election hiccup, spurred on by vaccine recovery hopes.

Asian currencies are also moving higher today, led by the Chinese yuan. USD/CNY has fallen 0.25% to 6.5950 and will be eyeing the week lows at 6.5650. The Korean won, Singapore dollar and Thai baht are also notable outperformers, suggesting that the markets believe that Asia is well placed to outperform, whether vaccines arrive to shorten the Covid-19 recession or not. I can’t disagree.

Overall, I expect the US dollar to continue to gently give ground over this week and next, with any other pharma-companies announcing phase-3 success for a vaccine accelerating that trend. The path may not be linear though, as the US presidential election drama and Trump-tweet risk could cause rapid, if short-term, reversals.

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