FX Summary: The dollar put in a firming session

FX Summary: The dollar put in a firming session amid a risk-cautious sentiment in global markets. Market conditions were thin amid the absence of U.S. participants. The DXY dollar index posted a one-month high at 90.95, setting this week up to be a third consecutive up week, which is something that hasn't been seen since January last year. EUR-USD printed a one-month low at 1.2055, extending the correction from the 33-month peak that was seen on January 6th at 1.2350. Cable saw a six-day low. The dollar bloc and other cyclical currencies saw the biggest magnitude of decline as global stock markets have continued to sputter. Chinese equities have been the exception, with the CSI 300 showing over a 1% gain in the late afternoon session having rebounded out of early declines following strong growth data. China Q4 GDP rose 6.5% y/y, beating the median forecast for 6.1%, with full-year growth coming in at 2.3%, which is impressive given all other major economies contracted. Most other equity markets, including in Asia and Europe, failed to catch a coattail. Asset markets around the world have lost the 'great reflation trade' spirit that had been so strong in November and December. Various factors seem to account for this. One is that the winter surge in Covid across the densely populated northern hemisphere has been perhaps worse than many had been anticipating, leading to tight societal restrictions across major economic areas. New variants in the SARS-Cov2 coronavirus has been a further concern, given the risk they could render current vaccinations less effective or even ineffective (a better understanding about this should emerge over the coming weeks). This has come asset valuations at lofty levels, ranging from the record highs in U.S. indices to the nine-year highs in iron ore prices, and with investors relatively low on spare cash. In the mix was an apparent sell-the-fact type of reaction after U.S. president-elect Biden last Thursday confirmed a $1.9 tln fiscal spending package. The transition of political power in the U.S. this Friday is also being viewed as something of a risk event, given the threat of violent protests. The cautious sentiment looks likely to persist for now.