Risk Rally Continues; Dollar Remains Firm

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Risk Rally Continues; Dollar Remains Firm

FEBRUARY 08, 2021

While quiet to start the week, the dollar has been gaining with risk sentiment which is likely a reaction to the rise in U.S. Treasury yields.

Overview

The recent rally in global stocks has picked up right where it left off last week.  Global equities are at are at a record high and the S&P is likely to set new record highs today.  The market is getting a boost after comments from Treasury Secretary Yellen who said the U.S. can return to full employment in 2022 if a robust fiscal relief package is passed.

The yield on the 30-year note broke above 2% for the first time in a year on expectations that a large rescue package could spark inflation. A number of Republicans and even some Democrats are warning of inflationary risks.  At the moment, we do not buy the argument.  There were many stark warnings about a spike in inflation following the bailouts and rescue spending following the 2009 financial crisis but none of that came to fruition.

In fact, the Federal Reserve admitted recently that they reeled in their monetary support too quickly coming out of the recession. Nevertheless, Treasury yields, stocks, the dollar, commodity prices and inflation hedges such as Bitcoin are up.  Markets are awash in green today.

There is no major economic data set for release today.  The consumer price index will cross the wire on Wednesday and will give us a good look at where inflation pressures stand ahead of President Biden’s proposed 1.9 trillion-dollar fiscal spending package.


What to Watch Today…

  • No major events scheduled for today

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TEMPUS ON LEFONTI TV – DOLLAR SET FOR BEST WEEK IN 3 MONTHS
Juan on LeFonti TV

EUR  

After experiencing downward pressure most of last week, the Euro was able to hold its ground overnight despite a resurgent greenback.  The widening discrepancy between the vaccine roll out in Europe and the United States is a major reason the common currency has seen selling pressure.

Political news out of the bloc’s third largest economy continues to dominate headlines.  Italian stocks are in rally mode as former European Central Bank President Mario Draghi works to form a new national government as early as this week.

The European economic docket is light, but we will keep an eye on ECB chief Christine Lagarde’s speech later this morning.

CAD  

While many traditional risk-sensitive currencies have not been able to take advantage of the rising risk sentiment in recent week, commodity-based currencies have proved to be more resilient.  Indeed, the Norwegian krone and the Canadian dollar eked out small gains versus the U.S. dollar as the price of Brent crude rose above $60 a barrel for the first time in over a year.

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