The year 2020 is finally over, but the economic impact of Covid-19 is far from over. With many of the major economies in lockdown, the road to recovery promises to be long and bumpy. The US dollar is showing signs of stabilizing, but with more easing and stimulus likely under the Democrats, the dollar has more room to decline in the coming weeks and months.

Eurozone inflation continues to struggle in the eurozone, as CPI came in at -0.3%, marking a fifth straight decline.

UK PMIs were a mixed bag in December. Manufacturing remains strong, as the PMI accelerated to 57.5, up from 55.6 beforehand. This was the highest level since November 2017. Services PMI has slipped into contraction territory and came in at 49.4, below the neutral 50-level. Construction also remains in expansionary territory and the PMI came in at 54.6 points.

Canada’s economy showed a loss of 62.5 thousand jobs, the first decline since April. The unemployment rate ticked up to 8.6%, up from 8.7%.

In the US, ISM PMIs reports pointed to accelerated expansion in December. Manufacturing PMI improved to 60.7, up from 57.5 beforehand. This beat expectations and was the highest reading since August 2018. Services PMI climbed to 57.2, up from 55.9 beforehand. This exceeded the estimate of 54.5 points.

Nonfarm payrolls was a disaster, with a sharp loss of 140 thousand. The consensus estimate called for a gain of 60 thousand. There was better news from wage growth, which jumped 0.8%, up from 0.3% a month earlier. This was the strongest gain since April.

  1. US Inflation Report: Wednesday, 13:30. CPI has been weak, but headline inflation is projected to rise to 0.4% in December. The core reading is expected to remain at 0.2%.
  2. ECB Monetary Policy Meeting Accounts: Thursday, 12:30. The accounts provide details of the ECB’s most recent policy meeting. Investors will be looking for any hints regarding future monetary policy and possible easing measures in the new year.
  3. British GDP: Friday, 7:00. The monthly GDP report has been falling and came in at just 0.4% in October. Analysts are braced for a sharp contraction of 4.6% in November.
  4. French CPI: Friday, 7:45. Inflation in the eurozone’s second-largest economy remains soft. The forecast for December stands at 0.2%, after an identical reading last month.
  5. Core Retail Sales: Friday, 13:30. Retail sales were dismal in November. The headline figure declined by 1.1%, while core retail sales contracted by 0.9%. In December, the numbers are expected to improve to 0.0% and -0.1%, respectively.

Further reading:

  • EUR/USD forecast – for everything related to the euro.
  • USD/JPY forecast – projections for dollar/yen
  • AUD/USD forecast – predictions for the Aussie dollar.
  • USD/CAD forecast – Canadian dollar analysis
  • Forex weekly forecast – Outlook for the major events of the week.

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