Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Edges Higher; Stimulus Concerns weigh on Risk Sentiment

Published 26/01/2021, 08:04
Updated 26/01/2021, 08:05
© Reuters.

© Reuters.

By Peter Nurse

Investing.com - The dollar edged higher in early European trading Tuesday, as concerns over the timing and size of U.S. stimulus weighed on market sentiment ahead of a Federal Reserve meeting.

At 3:05 AM ET (0805 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 90.547.

USD/JPY was down 0.1% at 103.78, GBP/USD fell 0.4% to 1.3620, while the risk-sensitive AUD/USD was down 0.4% at 0.7675.

Risk sentiment has been boosted over the last few months, to the detriment of the safe haven dollar, by hopes of additional U.S. stimulus to boost economic growth.

Bets that the U.S. dollar keeps falling, to extend a downtrend which began last March, hit their highest in almost a decade last week, data showed.

However, doubts are starting to emerge about when and to what degree the $1.9 trillion stimulus package proposed by U.S. President Joe Biden, to be largely financed by borrowing, will be passed by Congress as some Republican lawmakers rail against the size of the bill.

At the same time, coronavirus cases are surging and U.S. economic data has pointed to a flagging pace in the recovery.

This brings this week’s Federal Reserve meeting, the first under the Biden administration, starting later Tuesday to conclude on Wednesday, into focus. The Fed has pledged to back the economy in any way it can, and rates are likely to be held steady with further commentary about the outlook for an economic revival. 

“The big question during the spring is if [Fed Chairman] Jay Powell is willing to play ball when the potential mountain of issuance hits markets. We doubt that the Fed will increase QE to accommodate the Biden-boom, not least as inflation is about to soar,” said analysts at Nordea, in a research note.

The economic data slate is relatively light Tuesday, but attention will start to focus on the release of the fourth quarter GDP figure later in the week, which is expected to show that the country’s economic recovery has weakened as it continues to fight surging numbers of COVID-19 cases. 

Elsewhere, EUR/USD fell 0.2% to 1.2108, amid continued political uncertainty in Italy. Italian Prime Minister Giuseppe Conte is expected to resign Tuesday, hoping that President Sergio Mattarella will give him a mandate to form a new government with broader backing in parliament.

This follows a junior member of Italy’s ruling coalition, led by Conte, quitting last week over the government's handling of the coronavirus crisis and economic recession.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.