Will Dollar Rally in December?

According to the historical seasonality, the US dollar depreciates in December while the stock market performs extremely well. Will it be different this time?

If you do not believe in market seasonality, here are some interesting stats to consider:

  • December is the 3rd best month of the year with the S&P500 rising 1.5% since 1950
  • The main stock index increased 74% of the time since 1926
  • A Santa Claus rally (last week of December and first two days of January) resulted in positive returns 76% since 1969

As for the Forex market, the seasonality of currencies in December is not strong. The US dollar fell by 0.52% on averance over the last 10 years.

Will it be different this time? There are strong reasons to believe so. The Fed shifting to a more hawkish stance can boost the year-end performance of the US dollar. Concerns around Omicron variant pose risks to the economy and can delay interest rates hikes. Within the next week to 10 days, we will know more about the omicron variant, from there the market can assess it's impact on the economy. It is a risk, but the initial market reaction was more fear-driven. If these concerns start to fade away, this can lead to a substantial outperformance of the US dollar. 

Here is how the US dollar seasonality looks like over the last 10 years. For more specific data on currency pairs, use our awesome widget Monthly Volatility.