The British Pound seems to be performing an unexpected rally amid moderately strengthening of the U.S. Dollar. The Cable rose to new January highs at 1.3710 on Wednesday. Such levels have not been seen since April 2018.
The reason for the rally is most likely a higher than expected inflation of 1.4% YoY in the United Kingdom. The CPI index in December was also higher than expected at 0.6% vs 0.3% last November. The inflation rose after the UK government lifted some traveling restrictions amid overall national quarantine.
A common place in the financial markets in the last months is the sentiment that the U.S. Dollar is poised to a further decline against other major currencies. Among other arguments put forward by investors were the combination of the Blue wave of Democratic dominance in the Congress of the United States and dovish monetary policy from the Federal Reserve (Fed).
It is a fact that the presidency of Democrat Joe Biden is accompanied by the takeover of the majority in the Congress by Democrats.
The restless year of 2020 seems to be ending with optimism as compensation for all the disturbances that investors experienced during this year. The last week of the year is concentrated on all the latest positive news, which is the type of news that did not surface over the stretch of the other 51 weeks of 2020. The new relief bill saga in the United States, which lasted for several months, finally ended with the approval of Congress and the bill being signed into law by the President Donald Trump.
The United Kingdom became a lead actor this Christmas week as the news about the new coronavirus strain discovered in this country sharply hit markets. Risky assets went under a sell-off in recent days as new fears over the spread of the coronavirus and the possible ineffectiveness of the vaccines which have begun to be distributed, seemed to freeze investors’ hearts. Moreover, EU-UK trade negotiations over Brexit have been unsuccessful so far and this has amplified skepticism that the deal will be reached before the final-final deadline on December 31.
Federal Reserve (Fed) and its Chairman Jerome Powell have said nothing particularly new after the Fed’s Federal Open Market Committee meeting, which was the last meeting for 2020. Hopes for a further softening of monetary policy by the Fed eventually were not fulfilled. Interest rates were kept within the range of 0-0.25% and the Fed will continue to increase its holdings of securities by $120 billion a month, disappointing those who hoped for an extension of the purchase program. The monetary policymaker will buy U.S.
It may sound weird, but the title of the article can be found on a list of shock scenarios recently published by Saxo bank. There are no substantial calculations behind its forecasts, as the purpose of the list may rather be to point out possible shocks and surprises for the global economy for the year to come. However, this shock tactic may have some reason behind it, as some of these forecasted scenarios may be actual possibilities and developments that may unfold during 2021.
One of the most intriguing scenarios suggested by Saxo Bank is the rising demand for silver.
Last month’s movements of gold prices are startling. After an impersonal rally this year from $1451 per troy ounce in March, the yellow metal in November lost 10% of its maximum price of $1965 per ounce to $1774, the worst monthly loss for the last four years. Did gold lose its function as a safe haven asset in November amid roaring pandemic and global economic turmoil?
Hardly. Gold maintains its safe haven status. Economic “storms” and jeopardies have eased since this spring, when investors sheltered themselves in gold instruments.
Bitcoin, a leading digital currency, lost almost 12.5% on Thursday morning after it almost hit all-time highs of December 2017 at $19,891. In 2020 the digital currency has repeated it’s hype fromthree years ago when it rocketed up by 484% from its lows of $4000 in March to this year’s high of $19,349 which was reached on Tuesday. Bitcoin has performed notably in November this year as it gained 37%.
The rally in the leading cryptocurrency may be partially explained as it is positioned as a risky asset or “digital gold” opposed to the U.S. Dollar.
The pandemic of coronavirus pushed global debt levels to new highs of $272 trillion in the third quarter of 2020, rising by 6.7%, an unprecedented level since 2016. The level of the global debt is expected to top $277 trillion by the end of 2020, according to the Institute for International Finance (IFF) Global Debt Monitor. This would represent a debt-to-GDP ratio of 365%.
In 2019, IFF recorded the rise of the global debt by $10 trillion or just 4% to $255 trillion. Global GDP last year, according to the United Nations data, rose by 2.3% only.
Flighty financial markets are closely monitoring the U.S election saga that is still unwinding after Election Day on November 3. As Democratic nominee Joe Biden gets more and more votes, risky assets and currencies against the U.S. Dollar are seen to be getting more support. This trend is not only supported by the democratic promise to approve the large relief bill of $2.2 trillion, but also by hopes of smoothing trade tensions and geopolitical confrontation with China that would most likely improve global trade in investments.
This sentiment is supported by rising stock indexes that gained 1.