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22 Jan 2021
3 min read

US Dollar Depreciates as Global Rally Loses Steam

US Dollar Depreciates as Global Rally Loses Steam

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Key Takeaways

  • Vaccination plans lagging behind
  • Losses characterize European markets

Indexes open to the downside on Friday as global stocks dip from all-time highs. Restrictions to curb the escalating Covid infections have dented some of the optimism around earnings and the prospect of additional stimulus. Hopes for accelerated vaccination rollouts and the speed of economic recovery have failed to materialize so far. In the European Union, many of the countries are falling behind in their attempts to keep up with the intended vaccination pace. In Asia, new lockdowns and the absence of a vaccination strategy is also contributing to the uncertainty in the markets.

The US continues to be on the high end of the rate of infections as the stimulus package proposal is being prepared to go through the House and the Senate. As the stimulus will take time, President Biden announced a stronger vaccination plan. On Thursday, his first full day in office, Mr. Biden introduced a Covid-19 plan and vowed to administer 100 million vaccines in 100 days. In response to the Trump administration’s vaccine strategy, Joe Biden called it a “dismal failure”. American fatalities related to Covid-19 continue to reach higher. Over 400,000 lives have been lost. “The death toll will likely top 500,000 next months,” said Mr. Biden in a news conference, while he also warned that “things are going to continue to get worse before they get better.

The UK is performing better than most of its peers as it is keeping on track with its goal to vaccinate 15 million by February 15. However, due to the continuous surge in new infections, Prime Minister Boris Johnson announced that the government is contemplating a third lockdown that could go well into summer. PM Boris Johnson warned that the new coronavirus variant is “much more contagious” and the UK is heading into a period of “tough few weeks ahead”.

The Sterling Dips as Data Is Not Encouraging

Staying on the UK story, the Sterling depreciated against the US dollar, following a weak batch of data coming from the UK. Manufacturing PMI dropped to 52.9 in January, while the gauge for the services sector dived further into contraction territory and arrived at 38.8. The consensus estimate for the set of data was 57.3 and 49,9, respectively. The GBPUSD snapped three straight days of gains sliding near 1.3650 after soaring around two-year highs above 1.3700 to 1.3750.

The US dollar has been pressured on Friday. EURUSD is picking up some gains as the European session unfolds. The exchange rate is trading near 1.2170 as market participants are on track for a second consecutive day of upward momentum for the pair. The EURUSD did not react to the German manufacturing PMI, which arrived below the consensus for January, at 57.5 versus the expected 57.5.

Against other currencies, the greenback is trading mixed on the day. The USDCAD is moving to the upside, hovering near the 1.2700 level. The USDCHF is trading to the downside for a second day as the pair is sliding towards 0.8800, currently at 0.8840. The USDJPY is flashing modest gains of about 0.22% today. The pair is trading around daily highs of 103.70 with a low of 103.48.

European markets today are on the defensive side. All benchmark indexes are showing losses in the session, led by the French CAC40, down over 1.00%. The DAX and the FTSE100 are also negative, losing

about 0.70% and 0.50%, respectively, as investors are cautious heading into the weekend. US equity futures indicate a lower open.

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