U.S. Dollar stays buoyant, revival in risk-taking

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U.S. Dollar stays buoyant, revival in risk-taking

JANUARY 29, 2020

The U.S. Dollar remains quite strong across the board ahead of today’s Federal Reserve meeting as this week continues to be disturbed by the outbreak of a deadly virus.

Overview

Markets are showing some signs of calming down, yet the addition of a new risk to economic activity must be unexpectedly addressed and confronted by the Fed and other central banks. Fears of a longer slowdown tip the needle towards easing measures, but will they have to be exercised sooner rather than later? Traders also welcomed the news that a senior White House official denied a report that said the administration was considering suspending U.S.-China commercial flights.  

Chinese markets will not be open until Monday, but Hong Kong’s Hang Seng Index is down while other worldwide exchanges are improving. Good earnings and steady indicators are lifting up spirits. At the moment, the buck looks unshakable, but Fed Chairman Jerome Powell could change that this afternoon. At his presser, expect plenty of inquiries about the Fed’s injections in the Repo market, which are starting to be perceived as “QE lite.” This could bode poorly for the greenback later and if doubt is fomented over policy.

What to Watch Today…

  • No major events scheduled for today.

Complete Economic Calendar can be found here.

EUR

The Euro is trading at its weakest point since the end of November based on economic uncertainty. However, things may eventually present themselves to be less of havoc as Germany increased its Gross Domestic Product forecast and officials say there are plans to increase spending. The fiscal boost would be welcome action to ECB Governing Council member Olli Rehn, once considered for the ECB chairman position.

Speaking in Helsinki, Rehn said that he believes the ECB has not exhausted all the tools at its disposal and can help if the need arises. Furthermore, he supports Lagarde in asking governments to do their part in fighting austerity to take measures by monetary policymakers actually work. He also was optimistic that growth could accelerate this year and that inflationary growth is being supported.

CHF

The Swiss Franc is down to its weakest value since the end of December, losing the momentum gained as a safe-haven asset in response to the negative impact on markets caused by the coronavirus. There now seems to be a lack of panic and the currency does not have much else to back it up.

The benchmark interest rate at (-0.75%) and the economy expanding by less than 0.5% on a quarterly basis do not make CHF too attractive. The Swiss National Bank will not meet until March 19th. We certainly see room for further depreciation.

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