Markets wait for Powell / UK posts poor employment data
There is plenty of discussion about the vaccination roll-out disparities across the globe, and relative performances will force currencies to re-calibrate in the medium term. Plenty of currency pairs are pushing highest / lowest levels for many years as markets try to time the recovery speed.
USD: The Fed Chair Powell testifies in front of Congress later today, all eyes will be on his words regarding inflation (or ‘re’flation) and prospects for the US recovery. However, many expect the underlying tone of the speech to be ‘ultra-accommodative’ which will keep pressure on the USD, and perhaps temper the bond market.
The USD has steadily declined this year, despite rising bond yields, which usually would attract investors to a currency. We can expect additional fiscal stimulus in the US to be announced imminently .. in fact, The House Budget Committee on Monday voted to advance the Democrats' massive coronavirus relief plan – this, combined with the expectation of a strong global recovery and a maturing vaccine roll-out, may start to support the USD in the medium-term – which is why the market will be closely watching Powell’s comments today.
GBP: With GBP/EUR well above 1.1550 and GBP/USD stable above 1.4050, sterling has been the stand-out performer since early Jan. After a painful but effective lockdown, combined with an effective and efficient vaccine roll-out caused the rally. Last night’s information from PM Johnson surrounding a gradual lifting of lockdown has not affected GBP – which stays resilient.
GBP reacted positively to this morning’s poor employment data, which showed that the unemployment rate edged higher to 5.1% in December from 5.0% previous. The reading was in line with market expectations and was largely offset by an unexpected drop in the Claimant Count. This suggests a consolidation at current levels, with GBP comfortable here.
EUR: Remains strong, despite obvious disparities between member nations economies, and the obvious effects of Covid-19. EUR/USD has advanced for 1 week, pushing to 1.2200. FXStreet economists suggest a strong medium-term outlook for the EUR - expected to remain unchanged in the longer run, always supported by the reflation/vaccine trade and hopes of a strong recovery in the region. In addition, real interest rates continue to favour the euro area vs. the US, which is also another factor supporting the EUR along with the huge, long positioning in the speculative community.
EUR data:
Wednesday: German Q4 GDP data
Thursday: ECB Council meeting to discuss the wider economy and policy
Friday: ECB President Lagarde is part of the G20 meeting
NZD: Tomorrow, Wednesday, sees Policy Statement, Interest Rate decision and prepared statement from the Central Bank
AUD: AUD/USD is at 3yr tops, as a resilient Australian economy, increased risk appetite and a weak USD pushed the rate to 0.7900. Whether AUD can keep going is in debate (poor trade figures made for volatile trading overnight), but the momentum and fundamentals remain in place, and look to do so into the medium term.