The dollar is generally recovering today after a decline in risk appetite. Investors appear to be cutting back on equity gains. The next strongest positions are followed by the Swiss franc and the euro, followed by the yen. On the other hand, the Australian dollar and sterling have the worst performance.
In particular, the pound came under pressure due to a sharp deterioration in production data. The dollar is still underperforming over the week, but the Australian dollar may overtake it before the close. The euro is still the strongest, followed by the Swiss franc.
The US dollar will remain weak throughout 2021 and early 2022, despite interventions by central banks in the market to contain the strength of national currencies.
Towards the end of 2020, and especially in the past few weeks, we have seen policymakers express discomfort with the resumption of growth in their respective currencies, due to concerns that this could reduce their economic competitiveness in the global market.
Given the fragile recovery in many foreign economies, policymakers suggested that a weaker exchange rate might be preferable to boost exports.
Equity markets are ending the week negatively after a period of consolidation this month. It was a bizarre start to the year after a record two months, with vaccine optimism bolstered upbeat sentiment despite rising short-term Covid risks.
The political distraction in the United States may have also been a useful distraction for investors, bringing them closer to earnings season when corporate America could provide renewed optimism.
However, there has always been a risk that the spread of the virus and associated blockages could eventually take its toll. The first quarter of the year, while extremely promising in terms of vaccine rollout, is proving to be much more challenging than many might expect, aided in large part by new highly infectious options.
This is what seemed to be dumped by the markets, and instead, for obvious reasons, the focus was on the second quarter and beyond. But at some point, the reality of the current situation may affect sentiment, and this is what we can see in the coming weeks.
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