GBP: GBP unable to break higher

EUR: Still in an uptrend

USD: Positioning suggests more and more see a lower USD

Sterling

GBPUSD continues to hold near the top of its current range, testing a move higher but finding it impossible so far to break through 1.34 level. Some of this will be sterling’s weakness on Brexit issues – there are seemingly as many reasons why a Brexit deal won’t be signed this week as there are reasons why there will – but also the dollar’s resistance to breaking lower.

Parliament will generate a number of headlines today with a decent group of MPs expected to vote against the government’s plans to take us out of this current lockdown into a tiered system. The government will win the vote, but it is clear that it will be unpopular – notably within the parliamentary Conservative party – for doing so.

Euro

EURUSD tickled above 1.20 but has since pulled back. We think this is breather more than an about turn and dollar weakness into the new year will pull the pair higher from here.

US dollar

Vaccine news is still coming thick and fast and while the moves seen following such announcements are much, much weaker than previous ones have been, the trend of a weaker USD and higher risk assets is as clear as night and day.

On a trade-weighted basis the dollar slipped to a 30 month low yesterday and a continuation of that move is front and centre to a lot of the investment community’s belief for how prices will evolve in the coming year.

Our belief remains that we may see a near-perfect storm of dollar devaluation influences (higher inflation, large deficit spending, a global recovery from Covid-19 and a trade tolerant President) hitting in 2021. Some banks are talking about double-digit percentage moves in dollar weakness moving forward and whilst a lot would have to go right – or wrong depending on your side of the price – for that to happen, 2021 is opening up as the beginning of a real bear market for the USD.

Risks to this remain in the rollout of the vaccine and its efficacy in normalising what we used to take for granted but markets have little time for that at the moment it seems.

Elsewhere

The Reserve Bank of Australia meeting overnight went as was widely expected, allowing the AUD to hold on to its recent gains. While the Reserve Bank of Australia has said that they will not raise rates for the next three years, markets are likely to up the ante on the central bank in 2021 should the recovery progress as well as some expect.

Have a great day.