Dollar Down, Equities Up on Covid Progress and Reflation Trade

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Dollar Down, Equities Up on Covid Progress and Reflation Trade

FEBRUARY 16, 2021

The U.S. dollar starts the holiday-shortened week on the backfoot.

Overview

The safe-haven currency is again under pressure as global equities continue to enjoy a record streak.  Indeed, the MSCI benchmark for both emerging and developed stock markets has risen for 12 straight sessions.  If the level holds, it will be the longest run of gains in 17 years.

American stock futures are also solidly in the green today as Congress sets its sights on a large stimulus package and positive news surrounding vaccines and falling hospitalization rates dominate headlines.  Signs of the “reflation” trade might be most obvious in bond markets as the yield on the 30-year Treasury bond traded back above 2%. The yield on the 10-year note reached its highest level since last March.

Later this morning, empire manufacturing data will be released.  There is also a slew of Fed speakers on today’s dockets that warrant monitoring.  However, the biggest risk event on this week’s calendar is likely Wednesday’s U.S. retail sales figures.

Bitcoin rallied over 50K for the first time in its existence.


What to Watch Today…

  • Empire State Manufacturing at 8:30 a.m.

View Economic Calendar

TEMPUS IN REUTERS – DOLLAR FEELING THE HEAT
US Dollar Index Chart
“The reflation trade that boosted equities and caused the 30-year yield breach 2% has changed to worries that a quick spike in inflation would be detrimental to risk and also the dollar,” said John Doyle, vice president of dealing and trading, at Tempus Inc. in Washington.

NZD  

Commodity-based currencies were the big winner overnight.  The Canadian dollar and the Norwegian krone are up as the price of oil continues to soar.  Brent crude reached a 13-month high as record cold weather in Texas sparked an energy crisis and disrupted the supply of shale.

Other commodity-backed currencies such as the New Zealand dollar and the South African rand made strides as metals such as copper and tin pushed towards multi-year highs.

GBP  

The British pound rose even higher overnight and it’s currently trading at its strongest level since 2018.  The pound has benefited as most of the Brexit drama is in the rearview mirror, but positive Covid-19 news has also helped the currency.  Prime Minister Boris Johnson began to lay out plans to ease current lockdown restrictions as vaccine distribution picks up steam. Johnson wants the current lockdown to be the country’s last.  GBP/USD has risen for the past three sessions.

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