U.S. Dollar Decline Continues

The US dollar weakens

The markets are in a bullish mood ahead of Thanksgiving, with a rash of good news filling the plates of investors. There are now three Covid vaccines that will soon be available and the presidential transition has started. The appointment of former Federal Reserve Chair Janet Yellen as Treasury Secretary under a Biden presidency, was particularly well received by markets.

The US dollar spent the evening on the back foot as investors piled into pro-growth cyclical positioning at the expense of defensive plays such as the US dollar and US Treasuries. Hopes for a global recovery in 2021, and the possibility of more fiscal stimulus after the Yellen announcement, saw the US yield curve steepen, which was bad news for the dollar and precious metals.

The dollar index fell 0.30% to 92.23 overnight and has edged lower again in Asia today by 0.14% to 92.10. That leaves the index hovering just above monthly support at 92.00, and the September low at 91.75. A weekly close below 91.75 opens the door to further losses initially targeting 91.00.

Among the major currencies, the EUR/USD and GBP/USD have risen to the top of their November ranges at 1.1905 and 1.3355 respectively. USD/JPY remains steady at 104.50 while AUD/USD and NZD/USD are unchanged at 0.7355 and 0.6985, the top of their month’s ranges, having locked in more gains overnight.

A stronger USD/CNY fix by the PBOC, today at 6.5749, has seen USD/CNY move lower to 6.5780, not far from its month’s lows at 6.5500. Along with CNY, Asian regional currencies also strengthened overnight versus the dollar. KRW, TWD, MYR, PHP, SGD, IDR and THB are all consolidating gains near multi-month and in some cases, multi-year highs.

The overriding impression is that currency markets are marshalling their forces for a large direction move. With pro-cyclical recovery momentum rapidly reaching escape velocity elsewhere, that move will almost certainly be a weaker US dollar. A story I expect to continue throughout 2021.

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