Dollar kicks off 2021 on the backfoot   

04 January 2021: The Greenback remains an unloved currency on the first trading day of 2021. Low interest rates and an improving economic outlook following vaccines rollout has led to further short selling in the US Dollar, particularly against the Euro and Chinese Yuan.


China's Renminbi strengthened 1% in early Monday trade, with USD/CNY crossing below 6.50 for the first time since June 2018. That has erased all Chinese currency losses since the US-China trade war kicked off officially in July 2018.  The strength in the Chinese Renminbi came despite slowing manufacturing activity. The Caixin/Markit manufacturing PMI slipped 1.9 points in December to 53.0. However, activity in the world’s second-largest economy remains in expansionary mode, while developed economies continue to impose lockdowns to control the virus spread.


Another supporting source for the currency comes from China's Foreign Exchange Trade System which announced a reduction in the US Dollar's weighting in the currency basket to 18.79% from 21.59%, while increasing the Euro's weighting to 18.15% from 17.40%. The absence of any intervention from the PBOC or state banks would suggest further gains in the upcoming weeks with a possible retest of the 2018 lows of 6.24.


Tuesday's Georgia Senate runoff elections will be critical for the US Dollar as a Democrat win of the two Senate seats could potentially unleash a lot more stimulus which simply suggests more pain for the Greenback.

Source: Hussein Sayed, Chief Market Strategist at FXTM

Reporting for EasyKobo on Tuesday, 05 January 2021 in Lagos, Nigeria

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