The U.S. Dollar swung a bit yesterday, but it is trying to sustain a gain for the week that thus far seems it could be between half to a full one percent.
Overview
A week characterized by market anxiety seems to be muted now after having a rally at the start of the week that certainly had more of an optimistic mood. Following the revelation of incoming President Joe Biden’s relief plan, which carries an ambitious range of expenditures plus a $1.9-trillion price tag to it, it seems investors and traders now worry the political backing for it may not fully be there and it could come up short of support and effect.
While Democrats gained Senate seats, it only makes the split 50/50 and there are items on the bill, that while great on paper, may require more than just a simple 51/49 voting majority, perhaps 60/40. Much like 2020, politics can bite economic thinking in the rear at any given time.
Federal Reserve Chairman Jerome Powell spoke during a college online conference yesterday and managed to defuse the talk around headlines this week regarding the potential for an upcoming round of tapering. As the Fed has expanded its financial role in markets, there was worry that a period of reflation, overall economic growth, could spark too much inflation and force the Fed’s hand at some point this year. Powell comments reassured us that the Fed is indeed committed to letting inflation ride to levels beyond 2.0% while also monitoring closely how an accommodative environment keeps the wheels of business alive, ideally thriving.
The economy as much as inflationary growth have a long way to go. December figures this morning showed that Producers Price Index advanced just the 0.8% expected, Retail Sales collapsed into negative territory at (-0.7%) when 0.0% was estimated, and the Empire Manufacturing for January gauge came in almost at half what it was expected in terms of business activity. Industrial Production will be out later at 9:15AM as well as the University of Michigan Consumer Confidence survey. Seems like the mode is to hold on to the buck right now as indicators underwhelm.
What to Watch Today…
- Industrial Production 9:15 AM
- University of Michigan 10:00 AM
EUR ⇓
The Euro could close out the week weaker as the coronavirus continues to force further lockdowns and stricter curfew across the Ancient continent. Comments from European Central Bank officials indicate a concern with the slow down caused by a condition that can hopefully be contained and eliminated as vaccines are rolled out. Global headlines continue to assess the distribution and the simple conclusion is that we all need more of them and at a more rapid pace.
As market momentum fades, expect Euro to be dragged down with it a bit while also accompanied with negative news items over the political struggles we are seeing flare once again in Italy and Spain. More elections are coming down the line at a time when governments need agreement over how to spend the funds from the €750.0+ billion rescue package agreed on last Summer.
GBP ⇓
The Pound has gained 1.2% of value for the week as traders welcomed the news that the Bank of England will not be looking to implement negative interest rates soon. The negative outlook for trade life after Brexit has many thinking the BOE will need to act and with interest rates already at 0.1%, there is no other place to go than 0.0% or below.
Switzerland, the Euro-zone, and Japan already have exercised some form of negative rate, deposit requirements, etc., but with little positive outcome or influence growth. There is not a lot of optimism over the British economy, especially with indicators such as November’s Industrial Production showing a deeper contraction than expected.
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