EUR/USD: Dollar relies on impressive US economy for 2021
A sharp rise in the yield of US government bonds, as well as hopes for the early adoption of additional measures to support the world’s largest economy, allowed the greenback to move away from recent multi-year lows.
The USD index rose more than 0.6% on Monday, climbing above 90.6 points.
“The main source of the dollar’s revival was the results of the recent Senate elections. Market participants expect that we will be able to receive significant financial support for the US economy,” said strategists at NAB.
Newly elected US President Joe Biden has already pledged to channel trillions of dollars towards the fight against coronavirus. He is due to present his economic program on Thursday, January 14th.
The USD is also strengthened by growing uncertainty about how long the Fed will stick to its ultra-soft policy.
Last Friday, Fed Vice Chairman Richard Clarida said the US economy has an impressive year ahead as the impact of COVID-19 vaccinations intensifies, as does a potential increase in government spending.
The President of the Federal Reserve Bank of Philadelphia Patrick Harker predicts that the curtailment of the QE program may begin in the second half of 2021.
Fed Chairman Jerome Powell will deliver a speech on Thursday and the market will wait to see if he confirms the words of his colleagues.
The main currency pair reached its lowest levels since December 25 amid rising yields on US government bonds and a decrease in demand for risky assets.
The coronavirus epidemic continues on both sides of the Atlantic.
According to the WHO, nearly 88.4 million cases of COVID-19 infection have been registered worldwide.
The focus of investors is also on the political situation in the United States.
Democratic efforts to impeach Donald Trump again gained momentum over the weekend, but it remains to be seen if enough Republicans will support the move shortly before his term ends.
The beginning of this week was marked by the breakout of 1.2200 by the EUR/USD pair and the strengthening of the dollar rate above 90 points. According to experts, if these trends become medium-term, then the potential targets for the correction of the USD index and the main currency pair will be 92 and 1.1900, respectively.
“From the current levels, the EUR/USD pair may drop to 1.2125. The development of the movement to 1.2080 cannot be ruled out. In general, the pair will remain under pressure until it breaks above 1.2280,” said UOB experts.
Among the events of the coming week, in addition to the aforementioned speech of the head of the Fed, of particular interest are the data on the US consumer market, which will be released on Wednesday and Friday, as well as the minutes from the ECB meeting in December, which will be published on Thursday.
The material has been provided by InstaForex Company – www.instaforex.com