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Pound and Euro Gain as Brexit, U.S Stimulus Boost Risk Appetite

Dec 16, 2020
Pound and Euro Gain as Brexit, U.S Stimulus Boost Risk Appetite

On Thursday, the US dollar slid to its lowest against the euro and the British pound, after the Federal Reserve decided to stick to their current policy, and risk appetite got a boost due to hopes of a post-Brexit trade deal and more U.S. stimulus. According to policymakers and aids, the Congressional negotiators were inching closer to issuing a $900 billion coronavirus aid package in the United States. Market analysts said that they were expecting positive vaccine news and a US stimulus package to benefit stocks, but the same couldn’t be said for the US dollar. A broadening global recovery was simply eroding the safe-haven demand for the greenback.

As European markets opened, the dollar index continued to fall and was reduced to 89.88 against a basket of other currencies. This was the first time it had gone lower than 90 since April 2018. The currency also declined against the yen to 103.20. On Wednesday, the Federal Reserve announced that they would continue to funnel cash in financial markets for securing the recovery of the US economy. However, the promise of help in the long-term fell short of hopes of an immediate move by the Fed in the eye of some investors.

After the announcement by the Fed, the dollar index had risen slightly, but this increase was also short-lived. Meanwhile, the pound saw a boost over-optimism that the United Kingdom and the European Union would finally be able to sign a post-Brexit trade deal. The pound reached a value of $1.3578, which is the highest it has been since May 2018. On Thursday, Priti Patel, the UK Home Secretary said that their government and the European Union had entered a ‘tunnel’ in negotiations, but they were prepared to face the chances of no trade deal being made.

The euro was trading at a value of $1.2238, which is the highest the currency has been since April 2018. The Swiss franc didn’t slow down in its surge and reached a six-year high of $0.8830 after it was declared by the Swiss National Bank that it was prepared to intervene in the currency markets, even though the United States had gone as far as labeling it as a currency manipulator. According to the Treasury, both Vietnam and Switzerland had intervened in the currency market since June 2020 for preventing effective adjustments of the balance of payments. 

The onshore yuan of China was trading at 6.5827 per dollar, whereas its offshore counterpart had reached a value of 6.5058, both of which were near their mid-2018 highs. The Australian dollar had also reached its highest since June 2018, as it was trading at 0.7620 US cents. In addition, Bitcoin also reached a record high on Thursday, after it reached $22,891. This was an increase of 6.5% and had come just a day after the world’s first cryptocurrency had passed the $20,000 milestone for the first time. It is expected to go higher in the next couple of months.

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