- USD Boosted by Return to Risk Aversion
- Pound Weighed Down by Domestic Issues
- Markets Move Higher but Concerns Linger
The US Dollar has been weakened of late. This has given plenty of strength to the other major currencies in the forex market with both the GBP and Euro advancing recently. Today though the Dollar is returning to some strength amid some concern over rebounding COVID-19 cases and a concern as to whether the economy can continue recovering at such a pace. Sterling in particular has retracted as cases of the UK virus variant not make up the majority of cases according to some experts. Still though, markets continued to move higher yesterday. In particular the S&P 500, which hit new highs.
Caution Backs Dollar Move Higher
Despite a continuing message of support from Federal Reserve chief Jerome Powell, the overall mood in early forex trading was one of caution. This has fueled a move back toward the safety of the greenback as traders do not appear fully bought into the full steam ahead recovery that the Fed and government would like to promote.
An increase in US jobless numbers could well hold the key to the caution of traders approaching the end of this week. A number that had been consistently falling has now stayed perched above 700,000 for the second week in a row, ending a strong and steady roll downward. Treasury yields also edged higher again, and concern continues for spiking COVID-19 cases across Europe.
Sterling Falls Back on Domestic Concerns
While COVID, and a stronger Dollar also play a role, the concerns weighing down the Pound are appearing closer to home. A continued period of street riots in Northern Ireland, some of the worst seen in recent years, have given cause for concern throughout the UK. This will have added downward pressure to the currency and brought Brexit back into focus.
Forex brokers note another factor working against Sterling is the continued wrangle over vaccines with the EU. This could end up endangering the British supply as worry also persists about a link between the widely used AstraZeneca jab and blood clots which EU research teams have deemed to be “very rare” side effects of the vaccine. Altogether these factors have meant the Pound is now approaching the weekend below 1.37 against the Dollar.
Bull Market Continues to Rumble On
One area that has responded to the continued Fed support is the stock market. The Dow Jones, NASDAQ, and S&P500 were both in positive numbers for yesterday with the broader market largely buoyed by a return to form in major technology names.
These major FAANG names all closed higher with good gains as yields continued to drop yesterday. Despite the supportive tone of Jerome Powell though, concerns remain as to how far markets can run before a correction seems inevitable and with yields edging higher, pre-trading is pointing toward a flat opening bell to end the week on Friday.