Monex: Toegenomen risicobereidheid door mogelijk stimuleringsmaatregelen VS drukt op safe haven dollar

January 20, 2021

This is a commentary by Ima Sammani, FX Market Analyst at Monex Europe, on the USD, EUR and GBP exchange rates.

USD

The dollar broadly sold off against the G10 in yesterday’s session despite no new information being released for markets. The prospect of substantive fiscal stimulus remains in the US as the Biden administration is set to begin work today, which is helping support risk appetite in FX markets. However, at Janet Yellen’s Senate confirmation hearing, the Biden administration got their first glimpse of Republican opposition to a wide array of fiscal stimulus measures. Republican Senator Chuck Grassley said “now is not the time to enact a laundry list of liberal structural economic reforms” as fellow GOP Senators pressed the incoming Treasury Secretary on plans to raise taxes for high income earners and corporations, double the minimum wage and issue an additional $1400 in direct stimulus cheques. With the final level of fiscal stimulus still up for debate as it's unlikely the full $1.9trn will find bipartisan support, the focus will remain on Janet Yellen and her ability to find support in the Senate for as many support measures as possible. Meanwhile, the media will focus on Biden’s inauguration today, with security concerns dominating the picture after the storm on the Capitol earlier this month.

EUR

While the euro traded in the green against the majority of the G10 in yesterday’s session, this morning the currency was trading significantly lower against other procyclical currencies as firmer oil prices filtered through into the commodity-tied FX space, supporting currencies like AUD, NZD, NOK, and CAD. Italian BTP outperformed overnight after Prime Minister Giuseppe Conte received more support than expected on his confidence vote last night, pushing the BTP-Bund spread 2.5bps tighter. This lays the foundation for him to consolidate his hold on power in the days ahead while he works on broadening support for his depleted coalition, as his 156 votes of support still falls short of the outright majority of 161 votes. The majority would be needed to pass key legislation such as budget laws. Meanwhile, German chancellor Angela Merkel announced an extension and tightening of restrictions while also warning of possible border controls if other EU countries do not manage to lower their daily case count sufficiently. In the Netherlands, Prime Minister Mark Rutte will hold an emergency press conference this afternoon at 14:15 CET to possibly announce further tightening of measures, including the long-dreaded curfew. Virus headlines around the eurozone may cap any euro upside price action, however, the currency will likely also take cues from US politics today. With very little on the euro area data front and the eurozone final Consumer Price Index figures unlikely to move the needle for the euro, Italian political headlines remain in focus on the euro side.

GBP

Sterling is enjoying another day of improved risk appetite in markets as it climbs higher with the G10 against the dollar. Concerns still remain over the domestic Covid-19 situation, but with new cases falling and vaccine distribution continuing at elevated rates, the government’s timeline for schools to reopen on February 22nd looks feasible. However, despite the timeline for reopening looking stable for now, small businesses continue to be constrained despite government credit lines. Businesses' cash levels are depleted and their debt loads are rising for those with fixed costs, all at a time when revenue is non-existent. This has led to urgent calls from UK business lobby groups, including the CBI and British Chambers of Commerce, for immediate and sustained action from Chancellor Rishi Sunak. However, additional fiscal stimulus remains absent and looks set to be until the March budget. On the data calendar this morning, inflation ticked higher in December largely due to rising food and transportation costs, with the CPI YoY figure printing 0.1% higher at 1.4%. Today, at 17:00 GMT, Bank of England Governor Andrew Bailey and Financial Stability Director Alex Brazier respond to questions from a citizens’ panel - a discussion of negative rates isn’t a given but fresh direction could be given at this meeting.