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US Dollar Higher Amid Mixed Data, Political Turmoil

Matt Eidinger January 7, 2021

The US dollar is stronger this morning after last week’s labor market temperature check and international trade data for November. Although the “Big Dollar” has been under pressure in recent trading, it has crept moderately higher this morning, according to the trade-weighted DXY index.

The greenback had gained ground against the euro, the Canadian dollar and the British pound in morning trading.

According to the US Department of Labor, weekly jobless claims remained below the 800,000 mark for the second week in a row. As per the data from the week ending January 2, 2021, the number of Americans applying for new unemployment benefits was 787,000 – a decrease of 3,000 from the previous week’s 790,000.

Although the weekly decrease appears encouraging, lockdowns implemented in many US states were extended past their original expirations earlier this month and continue to keep weekly jobless claims in a relatively narrow zone around 800,000 where they have been stuck since August 2020.

An eleventh-hour compromise granting extensions to pandemic related unemployment assistance programs between congressional Democrats and Republicans was signed into law by President Trump in late December. This COVID-19 relief bill provides for an extra $300 USD per week for Americans receiving unemployment benefits and may prompt a rise in first time jobless claims in the coming weeks.

Continuing claims for unemployment insurance also encountered some difficulty – encountering resistance near the 5 million mark and registering 5.07 million during the week ending December 26, 2020.

Although continuing jobless claims have fallen from their record levels near 25 million set in April, the rate of improvement here has also slowed down substantially over the past few weeks. With the above-mentioned extension of pandemic unemployment assistance and Pandemic Emergency Unemployment compensation programs, continuing jobless claims may also continue to rise in the coming weeks.

Separately, the US Census Bureau reported the US trade deficit expanded to $68.1 billion in November – disappointing markets expecting figures closer to $65.2 billion as a result of near flat exports coupled with a $7 billion rise in imports.

The monthly trade deficit is over 50% higher than it was in November 2019, largely due to a sharp decrease in monthly exports throughout much of 2020 – echoing the economic pain caused by the COVID-19 pandemic.

In contrast, Statistics Canada reported Canada’s monthly trade deficit shrunk slightly to CAD $3.34 billion. Although there were notable gains in metal and mineral product exports, these were largely offset by decreased exports of heavy machinery, consumer goods and motor vehicle accessories.

What would normally be a morning filled with medium-level importance economic data releases has been overshadowed by events occurring in Washington, DC. What began as a large protest transformed into an armed insurrection on Wednesday as protesters stormed into congressional chambers at the US Capital Building.

Lawmakers resumed the process of ratifying the results of the presidential election after the protestors were cleared from the building, and confirmed President-elect Joe Biden’s victory early this morning, and President Donald Trump affirmed there would be a peaceful transition of power shortly afterwards.

Financial markets appear to have overlooked these events to a degree, preferring to focus on the fundamentals instead. In particular, the implications of the Democrat victory in both Georgia senate runoff elections and the final nonfarm payroll report of 2020, scheduled for tomorrow, remain in focus.

Matthew Eidinger

Market Strategist & Fintech Specialist