EUR/USD Shows Its Strength Amid A Gloomy Mood, Three Reasons To Recover

“Buy the rumor, sell the fact” – President-elect Joe Biden’s economic plans were reported by the press well ahead of his speech and were already priced in by markets. Investors had already cheered the prospects of the $1.9 trillion stimulus package before he began speaking, and then retreated when he failed to top it up.

However, the picture could change again.

1) Rethinking Biden’s speech

The mood also soured when Biden said that “everyone must pay their fair share,” hinting at tax hikes. The fall in stocks sent traders to the safe-haven US dollar. This flight to the greenback seemed to have diminished when yields on US debt returned to dominate the currency. Risk on/risk-off is making a comeback of sorts.

Another concern is that Democrats will have a hard time passing all the measures, given their razor-thin majorities in both chambers of Congress – but that is not a novelty.

Overall, apart from the potential tax hikes – which may be shelved – there is little to scare investors. The market’s mood may improve once again.

2) Powell is powerful

Before Biden took the stage, Federal Reserve Chair Jerome Powell clarified that the bank is fully committed to the accommodative policy. He seemed to end speculation of early tapering of the Fed’s bond-buying scheme. The pledge to print dollars as long as necessary – and to keep rates at zero – only temporarily hit the greenback amid Biden’s speech.

Investors may have a rethink of Powell’s words, which put to rest the taper talk coming from his colleagues. Powell is the boss, after all.

3) Weak US data

The US economy needs all the stimulus it can get as it struggles with the fallout from the winter wave of coronavirus, coming on top of a lapse of several government programs. Jobless claims surged to 965,000, far worse than expected and the highest since the summer.

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