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Dollar suffers festive hangover

Dollar suffers festive hangover

GBP
Welcome back, the first newsletter of the year hopefully heralds an end to turkey sandwiches, but more importantly, a happy and prosperous New Year to you all. Sterling was unable to muster any significant direction on the last trading day of the year, especially with very low trading volumes. Overall sentiment held firm, supported in part by oil and commodity prices and selling pressure into the year-end London fix.

The Pound pushed above 1.3500 against the Dollar for the first time in three weeks while the Euro strengthened to the 1.1260 area. The latest CFTC data recorded a net long, non-commercial Sterling position for the fourth successive week, maintaining the risk of a sharp sell-off if there are economic or political setbacks early in 2018. With this in mind, the latest PMI data will be watched closely this week for evidence on underlying economic trends.

Sterling continued to benefit from oil and commodity prices and held above 1.3500 versus the Dollar at market open.

USD

The US Dollar Index, which measures the Greenback’s performance against a basket of currencies, tumbled to its lowest level in more than three months over the festive period.

On the last trading day of the year, the Greenback continued to lose ground against its major counterparts and was further weighed down by a mildly softer tone around US Treasury bond yields. Against the backdrop of fading optimism over the long-awaited tax reform bill, year-end portfolio rebalancing pointed towards broad-based USD selling. The ongoing weakness could partly be attributed to weaker incoming US economic data, with the latest disappointment coming from last week’s goods trade deficit and weekly jobless claims.

Today’s follow-through weakness was primarily led by a sharp retracement in the US Treasury bond yields, which added to the already weaker sentiment surrounding the Greenback.

In absence of any major market-moving economic releases from the US, the US bond yield dynamics will continue to influence the Buck’s momentum on the first trading day of a new year.

EUR

During the festive period, the Euro rose above 1.2000 against the Dollar for the first time since September, reaching 1.2030. Against Sterling, the Euro has not seen much movement over the festive period, trading in and around 1.1250.

The Euro is among the top currencies of the year and, against the US Dollar, it gained 14.8%. Moving into the new year, markets believe that the Eurozone could deliver on its rate hike expectations and hence turn hawkish, improving Eurozone economic prospects.

Heading into Europe, a raft of final manufacturing PMI reports are due on the cards from the Euro area economies as attention turns back towards the fundamental drivers.

Data To Watch:

08:55 EUR Markit Manufacturing PMI (Dec)
09:30 GBP Markit Manufacturing PMI (Dec)
14:45 USD Markit Manufacturing PMI (Dec)

 

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