FX Weekly

FX Weekly Update – December 20th, 2021

Posted Under: Weekly updates

The safe-haven Japanese yen and Swiss franc advanced overnight. The greenback is giving back some of its gains against the Euro from Friday’s session but remains near its recent highs against its G10 counterparts.  Markets are weighing the likelihood of further government interventions, especially in Europe, to stem to spread of Omicron.  All major European and Asian indexes are in the red and futures show American shares will follow.

In addition to the threats from Covid and the expected reduction in monetary stimulus, the economic outlook for 2022 took another hit over the weekend.  Senator Joe Manchin effectively killed President Joe Biden’s two trillion-dollar fiscal package on Sunday during an interview on Fox News.  As a result, many economists began cutting growth forecasts for the next year. Goldman Sachs reduced its forecast for real GDP in the first quarter down to 2.0% from 3.0%.

Market moves are expected to be choppy this week as diminished liquidity can cause exaggerated moves.  Equity and bond markets are closed in the U.S. on Friday.

Commodity-based currencies saw the largest losses overnight, led by declines in the Australian dollar and Norwegian krone.  Declines in market sentiment and the diminishing outlook for the global economy in 2022 have played a part.  The price of West Texas Intermediate fell 4.8% on concern over the rapid spread of the virus and the collapse of President Biden’s economic plans, causing the Canadian dollar to dip 0.3%.

The British pound was back under selling pressure overnight but it’s regaining its footing in early trading.  The pound slipped as much as half a percent after U.K. Health Secretary Sajid Javid refused to rule out stronger measures ahead of the Christmas holiday.  U.K. Prime Minister Boris Johnson is set to hold a press conference later this morning.  According to Max Blain, Johnson’s spokesperson, there are “no plans” to close schools in January but deflected a question about another lockdown over Christmas saying, “we are keeping a very close eye on it.”