Dollar Stumbles; Sterling Reaches Three Year Best

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Dollar Stumbles; Sterling Reaches Three Year Best

FEBRUARY 09, 2021

The recent rally in global equities took a break overnight as inflation expectations continue to rise. 

Overview

While stimulus, vaccine momentum, and the reopening of the global economy are undoubtedly good for markets, a quick spike in inflation could damage risk appetite.  Despite lower stock prices, the greenback is under widespread pressure this morning, falling for its third straight day.  Indeed, the Bloomberg Dollar Spot Index reached its lowest level since January 27th.

All eyes will be on Washington today.  Yes, it is noteworthy that President Trump’s second impeachment trial begins today, but the focus will be on the progress of President Biden’s Covid relief package.  As more details are released, analysts will gauge their potential impact on the economy and inflation.  The plan is likely to advance under a budget procedure which will mean Biden will only need a simple majority in the Senate.

There is minimal data set for release today with only December JOLTs job openings out at 10 a.m.  St Louis Federal Reserve President James Bullard will speak on monetary policy at noon.  The consumer price index and a speech by Fed Chair Jerome Powell will highlight tomorrow’s docket.


What to Watch Today…

  • JOLTS job openings at 10 a.m.

View Economic Calendar

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EUR  

The Euro is among the G10 currencies taking advantage of the U.S. dollar sell-off.  EUR/USD rose nearly half a percent and touched its highest level since February 1st.   Technical analysts point out that the Euro’s resilience to bounce back above a key phycological level is bullish for the common currency. However, we see the pair settling into range familiar in January.

The push higher for the common currency comes despite a dour outlook for the European economy given by ECB President Lagarde yesterday.  Lagarde pointed to a slow vaccine rollout and the threats of different Covid-19 strains as stumbling blocks for the region’s economy.

GBP  

The British pound is on the offensive today, rising half a percent versus the greenback and reaching levels last seen in April of 2018.  The push higher comes as uncertainty over Brexit has mostly cleared, and a pickup in the rollout of the vaccine has squashed the idea that the Bank of England will have to introduce negative interest rates.  However, today’s tick higher is likely to be more of the story of a pullback in the dollar than a bullish sterling.

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