Daily Market UpdateJanuary 15, 2021
EUR/USD ranged from the high 1.20’s to the mid 1.21’s overnight. President-elect Joe Biden’s economic plans were reported by the press well ahead of his speech and were already priced in by markets. Investors had already cheered the prospects of the $1.9 trillion stimulus package before he began speaking, and then retreated when he failed to top it up.
1) Rethinking Biden’s speech
The mood also soured when Biden said that “everyone must pay their fair share,” hinting at tax hikes. The fall in stocks sent traders to the safe-haven US dollar. This flight to the greenback seemed to have diminished when yields on US debt returned to dominate the currency. Risk on/risk-off is making a comeback of sorts.
Another concern is that Democrats will have a hard time passing all the measures, given their razor-thin majorities in both chambers of Congress – but that is not a novelty.
Overall, apart from the potential tax hikes – which may be shelved – there is little to scare investors. The market’s mood may improve once again.
2) Powell is powerful
Before Biden took the stage, Federal Reserve Chair Jerome Powell clarified that the bank is fully committed to the accommodative policy. He seemed to end speculation of early tapering of the Fed’s bond-buying scheme. The pledge to print dollars as long as necessary – and to keep rates at zero – only temporarily hit the greenback amid Biden’s speech.
Investors may have a rethink of Powell’s words, which put to rest the taper talk coming from his colleagues. Powell is the boss, after all.
3) Weak US data
The US economy needs all the stimulus it can get as it struggles with the fallout from the winter wave of coronavirus, coming on top of a lapse of several government programs. Jobless claims surged to 965,000, far worse than expected and the highest since the summer.
Friday’s publications are unlikely to be cheerful. The Retail Sales report for December will likely show a year-over-year gain in 2020, but a subdued Christmas shopping season. The University of Michigan’s initial read of Consumer Sentiment is also set to decline.
GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown.
USD/JPY is falling for the second straight day on Friday. Wall Street’s main indexes look to open in the negative territory. 10-year US Treasury bond yield is down more than 2%.
The pair posted small daily losses on Thursday and continued to push lower on Friday with risk-off flows helping the JPY outperform its rivals. As of writing, the pair was trading at fresh daily lows, losing 0.14% at 103.64.
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