The greenback falls off the cliff (Daily analysis 17.12.2020)

The risk appetite is roaring which results in the dollar index trading below the 90.00 mark, the US equity markets setting new all-time highs and Brent oil trading close to 52 USD/bbl.

The EUR/USD pair breached the 1.22 boundary and now advances higher on an upward trajectory. The pound sterling leads the pack and has already fully pared losses from last week. Only five among the most important thirty currencies have failed to gain against the US dollar this week, yet none of them has so far declined by more than a mere 0.5%.

Progress on all fronts

The Moderna vaccine should obtain a green light from the advisory board of the Food and Drug Administration today. Based on the path of the Pfizer vaccine, emergency use authorisation could be granted on Saturday, and the vaccination process using Moderna drug might start as soon as next week. As far as the fiscal deal is concerned, no major news is perceived as a sign that a deal is unthreatened and will be confirmed this week. Similarly, market participants now seem to believe that a trade deal between the United Kingdom and the European Union will be reached in the nick of time to avoid a chaotic departure from the customs regime and UE’s free market.

Fed stays put

As widely expected, the FOMC opted to keep monetary policy unchanged. The Fed maintained the target range at 0.00-0.25% and the pledge to refrain from raising rates at least to 2024 remains valid. The Fed decided to wait with an announcement to modify its assets buying policy (buying more on the longer end, which would result in further lowering real yields). The pace of quantitative easing stays at USD120 bn per month or more. The sum consists of at least USD80 bn of Treasuries, and the rest falls to mortgage-backed securities. The monetary authorities warn the economy will struggle in coming months due to the second wave of COVID-19, but describe the outlook for the second part of the next year in an optimistic manner. It is always the darkest before dawn.

Conotoxia research team