Dollar weakening due to global risk-on sentiment


11 February 2021

Andrey Maslov, analyst, FINAM Group

On Thursday, February 11, EUR / USD rallied 0.11% to trade near 1.2129, while the DXY dollar rallied 0.02% to a two-week low of 90.249 following the release of US inflation data.

The US currency has been hit by risk-on sentiment in the markets today as investors seek riskier assets and global sentiment has improved as more countries launch a massive Covid-19 vaccination program. However, it should be noted that yesterday in Germany a decision was made to extend the lockdown until March 7, which will negatively affect the economic recovery.

In addition, the dollar is also under pressure from rising expectations for a $ 1.9 trillion stimulus package. As the package moves through Congress, global markets are becoming more confident about the future, which heightens risk appetite among investors.

Also, inflationary expectations have become an important factor of pressure on the US currency, which remain worrisome due to deferred demand and the low base effect from the 2020 shocks. US inflation data released on Wednesday showed that the core consumer price index (CPI) remained unchanged for the month, versus forecasted 0.2% growth and 0.1% growth recorded in December.

Fed Chairman Jerome Powell also noted that the unemployment rate remains high, and in his speech on Wednesday reaffirmed that the new policy framework of the central bank could contain annual inflation above 2%.
The euro, in turn, edged higher against the US dollar, despite French industrial production falling 0.8% below consensus in December. Meanwhile, inflation in Germany bolstered forecasts, rising 0.8% month-on-month.

Nonetheless, investors are optimistic about the joining efforts of AstraZeneca and Germany’s IDT Biologika to produce vaccines. As a result of this move, there is hope that vaccinations in Europe could accelerate in the coming months.

As for the US macroeconomic statistics, inflation data became known yesterday. In January, the value of the indicator was 1.4% (yoy), which is comparable with the previous period of 1.4% (yoy), and with the forecast of 1.5% (yoy (. In monthly terms, inflation amounted to + 0.3% (MoM), which is also equivalent to the consensus of 0.3% (MoM). The volume of inventories in warehouses for December 2020 increased by 0.3% compared to the forecast of growth of 0, one%.

In Europe, the final data on inflation in Germany for January were released. The value of the indicator was + 1% (y / y), which is in line with the forecasts of + 1% (y / y) and above the data for December at -0.3% (y / y). On a monthly basis, inflation was 0.8% MoM, which is also equivalent to the 0.8% MoM consensus.

Today in the US will be released weekly data on the initial and repeated applications for unemployment benefits. Also, data on the wholesale price index for January in Germany will become known.

EUR / USD is approaching the resistance level of 1.2150. Stochastic lines tend to the overbought zone, which indicates a limited upside potential for the instrument in the short term.

This information is not investment advice.

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