• US Nonfarm Payrolls,  jobless claims and retail sales have all badly disappointed. 
  • The dollar has been attracting safe-haven flows, abandoning its attachment to yields. 
  • Jerome Powell, the Federal Reserve's Chair, may turn that picture around.

In times of trouble, cash is king, and the dollar is the king of cash – and bad times have returned. Apart from supporting the dollar, the return of risk aversion has ended the greenback's dependency on Treasury yields, a correlation that has proved short-lived.

Three depressing figures have accumulated to changing the correlation and boosting the dollar. First, Nonfarm Payrolls fell by 140,000 in December, contrary to an increase economists had been expecting. That was somewhat offset by upward revisions. 

Second, US jobless claims surged to 965,000, worse than just around 800,000 expected and the highest since August. Markets found it harder to ignore that worrying figure.

Third, Retail Sales plunged by 1.4% in December – and on top of a fall in November. Black Friday and Christmas shopping were extremely weak, showing that covid and the lapse of government programs have taken their toll. Consumption is central to the world´s largest economy. 

Markets have been forward-looking but suddenly look to the recent past. What happened to enthusiasm about President-elect Joe Biden's stimulus plan? That has already been priced in before his speech, and investors were disappointed by hints of potential tax hikes. 

Despite vast government action, the No. 1 mover in currencies is the Federal Reserve. After several Fed officials publically contemplated tapping bond buys, Chair Jerome Powell ended that by rejecting any tightening anytime soon. 

Wil Powell take the extra step and hint at expanding the bank's bond-buying scheme? Additional Fed funds would fund Biden's ambitions, and perhaps more importantly for Powell and his colleagues – prevent any downfall in stock markets. For currency traders, it would mean a weaker dollar. 

For the Fed to take a dovish stance, perhaps a more severe "taper tantrum" is necessary – a more substantial fall in shares. The Fed would be able to deliver a more dovish message – or even a new policy announcement – in its January 27 rate decision. Any hint of action could hit the dollar. 

Five factors moving the US dollar in 2021 and not necessarily to the downside

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