Dollar Steady After Wild Month
JANUARY 29, 2021
The U.S. Dollar is likely to close the month as an overall winner as it is up by over half a percent since the start of the year.
Overnight trading sessions revealed concern in regional economies, a resurgence of COVID-19 infections with new variants even as far as Hong Kong, and losses for those equity indices.
This week’s obsession with the participation of many forces in the stock market to boost the value of particular companies’ shares has also brought to light issues with the grand scheme of economic power and the effects of a low-yield, negative, or 0.0% interest-rates around the world. Ultimately, things are still very uncertain as we end January and the lack of clarity about the future is slightly beneficial to the buck.
December numbers for Personal Income, Personal Spending, and Personal Consumption Expenditures came out this morning better than expected. There was a contraction in spending, but it was less than expected and income managed to grow three-fold 0.6% instead of 0.2% estimated. The PCE deflator was expected to grow 1.3% overall for the year but came in slightly higher at 1.5%. Pending Home Sales and the University of Michigan Consumer Confidence survey will be out at 10 AM. As mentioned yesterday in the Euro section, economists expect the U.S. to have pre-COVID level growth by end of the year, but hopefully, if vaccination can be ramped up nationally, the pace of progress could increase.
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The Euro has experienced a weakening trend as bad news kept piling up throughout January. We shall see if those fortunes somehow turn around as we close the month with the release of better-than-expected Q4 data and an effort by EU legislators to approve the Astra-Zeneca vaccine, which they hope to prioritize for European distribution initially.
Figures earlier out of Germany, France, and Spain showed that their Gross Domestic Product did not contract. Spain saw an uptick of 0.4% when (-1.4%) was forecast. France’s economy contracted less than expected, (-1.3%) over (-4.0%), while Germany’s economy managed to expand and not remain stuck as estimated. February will bring focus to how politics play out in Italy and elsewhere.
The Pound is up by half a percent thus far for January, primarily influenced by the hope that vaccination for herd immunity is developing faster than in other regions. The month of transition for the U.K. has brought up some trading issues, but thus far the country has managed. Additionally, predictions of a very dovish Bank of England did not materialize since the Governor, Andrew Bailey, said he sees problems with implementing such a policy. We shall see how resilient Sterling can be in a very strange environment and a very patchy resolution to COVID.