EUR/USD rallies to $1.21 on hopes Biden will usher in massive stimulus

Philip McHugh January 20th 2021 - 2 minute read

A risk-on mood, amid hopes for more US stimulus in the wake of comments from incoming Treasury Secretary Janet Yellen, saw the US dollar tumble on Tuesday.
Meanwhile, the pound is stable so far this morning ahead of what is sure to be an eventful day of trade, with GBP/EUR flat at €1.1249 and GBP/USD rangebound at $1.3662. GBP/CAD is muted at C$1.7353, while GBP/AUD and GBP/NZD hold steady at AU$1.7670 and NZ$1.9134, respectively.
Coming up, it looks to be a busy session for currency traders today, with both Joe Biden’s inauguration and the European Central Bank’s (ECB) latest policy meeting in the spotlight.

What’s been happening?

The US dollar retreated through yesterday’s session as demand for the safe-haven ‘Greenback’ was undermined by improving market sentiment.
This upbeat mood was driven mostly by US stimulus optimism, after incoming Treasury Secretary Janet Yellen suggested that Biden’s administration should ‘act big’ when considering the next coronavirus relief package.
The pullback in the US dollar directly benefitted the euro, with the negative correlation in the pairing driving EUR exchange rates higher.
This uptick in the euro was further supported by the latest ZEW surveys which reported a stronger-than-expected rise in German economic sentiment in January.
At the same time, the pound held steady through Tuesday’s trading session as the currency was bolstered by confidence that the accelerated pace of the UK’s vaccination rollout will allow the government to start easing lockdown measures from mid-February.

What’s coming up?

Turning to today’s session, it seems safe to assume that the spotlight will be on the inauguration of Joe Biden as the 46th President of the United States.
Biden is expected to ‘hit the ground running’ today by signing in a raft of executive orders, many of these will look to reverse policies implemented by his predecessor.
For USD investors, however, the key focus will be on what polices Biden prioritises and what impact they may have on the US economy. Expect to see the US dollar strengthen if there is even the slightest hint towards future tax hikes.
Also in focus will be the ECB’s first policy meeting of 2021. The ECB’s isn’t expected to make any changes to its monetary policy this month, but its comments on the strength of the euro could infuse some volatility into EUR exchange rates.
In the meantime, the publication of the UK’s latest consumer price index looks to offer some support to the pound today following a stronger-than-expected uptick in domestic inflation last month.

Written by
Philip McHugh

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