The US dollar started December with a bang, but suffered a significant correction afterwards.
TD looks at seasonal patterns and explains why softness in the greenback during December could be followed by a January rally:
Here is their view, courtesy of eFXnews:
The USD has been struggling against most majors this week amidst lower UST yields and falling equity prices, which seems at odds for the a typical risk-off environment, notes TD.
It’s worth noting here, according to TD, that the greenback tends to experience some seasonal softness in December before this weakness gives way to January strength.
“In the relatively limited history of floating exchange rates, there does appear to be something of a seasonal quirk in the USD’s performance. We can note that the recent experience of the USD tends to bear out the idea that the December month is not especially good for the big dollar overall,” TD clarifies.
“In any case, we still trust that the USD will overcome its recent soft patch in relatively short order, as the key fundamental factors powering its outperformance since early-summer (economic growth differential and monetary policy divergence relative to the Eurozone and Japan, improved external and fiscal balances, etc.) will remain very much in place for the next two years, at least,” TD adds.
“As such, USD weakness in the next few weeks will represent a buying opportunity,” TD advises.
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