Risk currencies continue stellar performance (Daily analysis 18.12.20200)

As we enter the final stage of the year, some key issues, namely the Brexit and U.S. fiscal stimulus, remain unresolved. Nonetheless, risk sentiments are still remarkably benign, which traditionally bodes ill for the greenback.

Moderna secured backing for its vaccine from the FDA's advisory panel, which should precede an immediate authorization for emergency use of the drug. Talks on the U.S. fiscal package as well as Brexit negotiations will probably stretch into the weekend.

Consequently, the pound's rally and U.S. dollar sell-off lose some steam due to the emergence of negative headline risks. EUR/USD still trades around 1,2250, and the cable slips from the 1,3630 area towards the 1,35 handle.

Another weekly dollar decline

Since the beginning of November, the U.S. dollar has experienced weekly declines against major peers in all the weeks except two. Over this period, the dollar index has tumbled by over 4% and set multi year lows. This week is no different as the greenback lost ground once again and depreciated against all G-10 currencies and the vast majority of emerging market's currencies. The hunt for yield has continued with Wall Street trading at all-time highs, commodities advancing and bitcoin rallying.

The pound has been the best G-10 performer as hopes for a Brexit deal revived. The cable has more than entirely retraced the previous week's jittery sell-off. The Scandies continue their stellar performance and in the fourth quarter, the Norwegian krone and Swedish krona have rallied by more than 8%. The South African rand leads the EM pack with a gain of close to 15%, followed by the Mexican peso and Brazilian real.

Conotoxia research team