14/01 – Biden speech crucial for dollar stimulus hopes

GBP: Needs its own strength

EUR: Lagarde comments don’t help matters

USD: Inflation not supporting USD strength

Sterling

Sterling has managed to hold onto gains made yesterday against the euro but, so far, has not been able to garner the strength to push through the 1.37 level against the USD. Traders who make their moves based on technical reasonings more than fundamentals are keen to see the pair break through that number, as it will open up an air pocket for sterling to try and fill towards the $1.40 mark.

The crucial thing remains for us, what is the impetus to get there? Stimulus conversations may be enough to keep the USD on the back foot but we could really do with some strong sterling news to help out. Tomorrow’s run of GDP plus industrial, manufacturing and construction output may do the job.

Euro

Minutes from last month’s ECB meeting are due today, a week before this month’s policy announcements and press conference. There was nothing new in comments yesterday from ECB President Lagarde that the ECB will monitor FX movements very carefully and they are “extremely attentive” to the FX impact on prices, but such is the belief that the euro is too high at current levels that those comments were enough to undermine the single currency.

Likewise, politics are back in Italy with a governing coalition partner quitting yesterday. While a confidence vote is likely soon, it is unclear whether this will be the first domino in a run towards an election.

US dollar

Yesterday’s inflation news from the US did little for those out there thinking that the world is due interest rate rises and tightened monetary policy by the end of the year. Core inflation – the kind that takes out food and energy prices – remained low in December and it is here that the Federal Reserve will be looking for nascent price pressures. Those wanting a taper and a higher dollar, may have to head back to the drawing board for now.

With a week to go until the Biden inauguration, markets are largely ignoring impeachment headlines for now with equities mixed on stimulus hopes. A slated speech by Biden later today may give us a further clue as to the size of his stimulus plans.

Elsewhere

Alongside the weaker USD, CHF and JPY are also lower this morning. We will look to the Biden speech for hints on risk heading into the weekend.

Have a great day.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.