Dollar consolidates recent gains ahead of Inauguration Day – Bibby's weekly FX update

Mon 18 Jan 2021
Posted by: William Barns-Graham
Features

bibby currency update

Sponsored content from Bibby Financial Services

Joe Biden will be inaugurated as the new US President on Wednesday 20 January, but markets are unlikely to be greatly affected by his speech.

The US dollar has had a better time of it lately and Biden’s words this week are unlikely to hinder this trend.

With the UK-EU negotiations now in the rear-view mirror for currency traders and the UK’s Covid vaccination programme progressing quicker than that of its European counterparts, market sentiment towards the pound also remains positive.

Negative interest rates

The pound had a difficult start to last week after Professor Silvana Tenreyro, a member of the Bank of England’s (BOE) Monetary Policy Committee, raised the possibility of negative interest rates being introduced.

Her comments sparked a sell-off of Sterling leading its value to fall to around US$1.35 and €1.11.

However, later in the week, governor of the BOE Andrew Bailey warned that several factors need to be taken into consideration before negative interest rates can be bought in, including possible damage to the banking sector.

Bailey’s guidance saw Sterling bounce back to values of around $1.37 and €1.13.

US dollar consolidates recent gains

Following the recent increase in US treasury yields, the US Dollar Index (DXY) has continued its recovery from lows of 89.2 to open this week just below 91.

President-elect Biden’s $1.9 trillion pandemic stimulus plan has also helped to solidify the dollar’s resurgence.

Consequently, the euro has slipped below $1.20 in value – a longstanding barrier for the single currency.

Oil

The price of oil, having previously surged to post-pandemic highs of US$54 per barrel following Saudi Arabia’s announcement of production cuts, slipped to a value of $52 last week.

This was possibly due to falling demand on the back of the discovery of new strains of the coronavirus.

Bitcoin volatility

Bitcoin continues to fluctuate wildly, with its value ranging from $30,500 to $41,000 during the week.

Week ahead

The pound should continue to be relatively steady, given the greater certainty in the UK following the conclusion of the UK-EU negotiations for trade in goods.

The UK is also well-placed to capitalise on movements in other currencies due to the progress being made in the roll-out of its domestic vaccination programme.

Stubbornly low Eurozone inflation and already negative interest rates look likely to keep the single currency under pressure. The European Central Bank (ECB) are due to make an announcement on future rates on Thursday.

Wednesday’s inauguration for President-elect Biden is unlikely to have any major impact on markets.

Economic Data 

Highlights this week include:

Today (18 January)

  • German Bundesbank’s monthly economic report
  • Speeches from:
    • ECB President Lagarde
    • BOE Governor Bailey

 Tuesday      

  • German CPI and ZEW economic sentiment survey
  • US Redbook
  • Speech from:
    • BOE’s Haldane

Wednesday   

  • UK and EU inflation reports
  • UK CBI industrial trends survey data
  • US crude oil inventories and API weekly crude stock data
  • US Presidential inauguration
  • Speech from:
    • US President-elect Joe Biden

 Thursday    

  • ECB interest rate announcement
  • US weekly jobless data

Friday     

  • UK retail sales and public sector borrowing data
  • Global preliminary PMI reports