All global investors were in risk search mode in the first full week of 2021. This came despite all the headlines about a surge in coronavirus infection and deaths, a return to lockdown, chaos in Washington, and Joe Biden’s certification as President-elect of the United States.
The dollar did not perform well, but surprisingly there was no major sell-off. A strong rally in US Treasury yields is likely to finally support the dollar, which in turn was reflected in the sell-off in gold.
Remaining in the foreign exchange markets, the focus of sellers shifted to the Japanese yen. Sterling followed the Yen and the Dollar and finished third in the ranking of the weakest. The Australian dollar finished as the strongest dollar, followed by the New Zealand dollar. Other major currencies are broadly patchy, including the Canadian dollar, which has shown little response to the rise in oil prices.
The United States lost 140,000 jobs in December. Despite more significant job cuts than expected, foreign exchange markets ignored this. Weaker job printing increases the need and expectations for additional financial support.
Nonetheless, foreign exchange markets are a bit optimistic about the Treasury offer and the seeming indifference of Fed officials to reserve rates and expect a slight strengthening of the dollar.
The US dollar rose on Friday despite a disappointing nonfarm payroll report as job losses fueled rumors that additional fiscal stimulus is on the agenda. President-elect Joe Biden called for immediate additional financial support, including a $2,000 increase in direct payments. However, the dollar’s growth was modest, while the major pairs were holding at their usual levels.
The EUR is one of the weakest, approaching 1.220 against the US dollar. Commodity-pegged currencies found support on Wall Street, which continued gains and ended the week near record highs.
US Treasury yields continued to rise, supporting USD/JPY, which closed at around 104.00, its highest in three weeks. The daily downtrend line emanating from March 2020 provides critical resistance around 104.50.
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