This article was published before we became the Chartered Institute of Export & International Trade on 10 July 2024, and this is reflected in references to our old brand and name. For more information about us becoming Chartered, visit our dedicated webpage on the change here.

bibby currency update

Sponsored content from Bibby Financial Services

Last week’s shocking scenes in Washington DC – where a President Trump-supporting mob broke into the halls of Congress – did little to impact a positive week for the US dollar.

The currency had been losing value in recent weeks as global risk sentiment has improved on the back of positive developments around Covid-19 vaccines. The dollar usually strengthens in times of uncertainty due to its status as a ‘safe haven’ currency.

However, while global stock markets continue to do well, the US dollar’s resurgence has perhaps surprisingly come at a time of relative certainty.

Dollar regains ground

The dollar regained value after US Treasury yields also rose, signalling that investments in the country are generating better earnings than previously.

Markets are starting to price in a reflationary Joe Biden administration following the Democrats’ wins in Georgia to gain control of the Senate. This increases the likelihood of the Democrats successfully passing larger stimulus packages to aid the country’s recovery from the pandemic.

The US dollar index (DXY), which dipped as low as 89.22 earlier last week, opened this week at 90.45.

Pound loses trade deal momentum

The strengthening of the dollar and the announcement of a third national lockdown in the UK has halted the momentum generated by Sterling after the signing of the UK-EU trade deal at the end of last year.

The pound slipped from highs of US$1.37 and €1.118 last week to below $1.35 and €1.1 over the weekend.

Euro slides against the dollar

The euro has also fallen against the US dollar though it had reached post-2018 highs of $1.235 last week. It opens this week back below the $1.22 point.

Gold and silver slide on dollar strength

The strengthening US dollar led to a reduction in the value of both gold and silver, with the former falling from $1,960 per ounce to as low as $1,820 and the latter from $27.9 to $24.5.

Bitcoin fluctuates wildly

Bitcoin continues to rise in value, exceeding $30,000 per bitcoin to as high as $42,000. This has fallen back to $35,000, which many commentators suggest is a more realistic value for the cryptocurrency.

However, the repeating rise and fall of Bitcoin reinforces the notion that cryptocurrencies remain a volatile asset.

Oil rallies on Saudi production cut

The price of oil rallied sharply after Saudi Arabia surprised markets by announcing a unilateral production cut of 1 million barrels per day from next month.

Prices surged as a result from US$47.3pb to as high as $52.7, despite an announcement from Russia that it will be increasing its own production.

Week ahead

Pound has foundations for growth

Despite dropping back last week, market sentiment towards Sterling is still positive, with the UK’s Covid-19 vaccine roll-out underway and ahead of most, if not all, of its peers.

However, there could be volatility for the pound when Silvana Tenreyro, an external member of the Bank of England (BOE) Monetary Policy Committee, chairs an online discussion about the pros and cons of negative interest rates.

Any indication that the UK could join others by introducing negative rates could undermine any future growth for Sterling.

Stimulus key for the dollar

Despite a good week just gone for the US dollar, the country’s employment report on Friday showed the first slowing of job creation in eight months and the US also announced a Covid daily death toll above 4,000 for the first time.

Markets are now anticipating a bolder stimulus package from the incoming Biden presidency than previously thought, which will be unveiled on Thursday.

Any move to remove Trump from office early is unlikely to have any major impact on currencies, especially considering Biden’s inauguration is only nine days away.

Economic Data 

Highlights this week include:

Today (11 January)    

  • EU Sentix investor confidence survey
  • Speeches:
    • BOE’s Silvana Tenreyro
    • European Central Bank President Lagarde
    • Federal Open Market Committee’s (FOMC) Bostik

Tuesday      

  • Environmental Investigation Agency (EIA) short term energy outlook
  • US Jolts job openings figures
  • Weekly API crude oil stocks data

 Wednesday   

  • Eurozone industrial production data
  • US inflation report and crude oil inventories data
  • US Federal Budget balance

Thursday    

  • German GDP data
  • ECB monetary policy statement
  • US weekly initial and continuing jobless claims numbers

Friday     

  • UK GDP data
  • UK industrial and manufacturing production and trade balance
  • EU trade balance
  • US Retail Sales, Industrial and Manufacturing production data