Daily Market Comment – Dollar, stocks rise in tandem as Democrats push ahead with stimulus



  • Democrats move to fast-track Biden’s stimulus package through Congress
  • Wall Street surges for second day on earnings beats, brighter outlook
  • US yield curve steepens, lifting the greenback; euro gets left behind

Stimulus and vaccine hopes buoy markets

Optimism about a stronger economic outlook and an ebb in the pandemic continued to gather pace on Wednesday, erasing last week’s jitters that sent stocks plunging and the dollar soaring. Equities have since made a powerful comeback, but the US currency has only extended its gains, underlining the changing dynamics behind the dollar ever since the Democrats swept the two Senate seats in the Georgia runoffs.

Expectations that the Democrats’ grip on both chambers of Congress will enable the Biden administration to follow through with its pledge to spend big have started to materialize. President Biden appears to be giving up on the idea of reaching a bipartisan deal with the Republicans as the two sides are far apart on what the next relief package should look like. Instead, the Democrats are edging closer to following the budget reconciliation route to get the bill through the Senate, which would allow them to pass the stimulus legislation with a simple majority and evade the filibuster that requires a 60-vote supermajority.

The Senate yesterday passed the budget resolution introduced by the Democrats, potentially paving the way for the $1.9 trillion virus aid bill to get approved by mid-March.

Wall Street eyes fresh records

The prospect of more stimulus in the not-too-distant future lifted Wall Street, with the three main indices closing around 1.5% higher on Tuesday. E-mini futures indicate US stocks are headed for a third day of solid gains, with Nasdaq futures leading the way. Tech stocks are expected to outperform today after both Amazon and Alphabet (Google) handily beat analysts’ estimates with their Q4 earnings. Qualcomm, Paypal and Ebay will be today’s highlights.

The big earnings releases seem to have shifted the spotlight away from the Reddit trading frenzy brought on by small-time retail investors. GameStop and AMC Entertainment shares extended their losses on Tuesday, though it’s probably only a matter of time before Reddit traders turn their sights onto a new target.

European shares were also in positive territory today, supported by upward revisions to the region’s services PMIs for January.

Dollar stands tall on steepening yield curve

The euro, however, continued to struggle on Wednesday, drifting towards the $1.20 level. The fall in Eurozone GDP in Q4 was not as bad as anticipated and the January PMIs suggest the first quarter drop might also not be as severe as initially feared. But investors are more worried about how quickly the euro area will recover in the second and third quarters given the slow rollout of vaccines in the European Union in comparison to the US and UK.

The pound held near 9-month highs against the euro but lost ground versus the resurgent US dollar, slipping to around $1.3655. The greenback hit a 2-month top against a basket of currencies yesterday even amidst the positive risk tone as long-dated Treasury yields extended their week-long ascent. The closely watched two- to 10-year curve is steepening again, as yields reverse the post-Fed meeting declines.

Even the risk-sensitive aussie and kiwi found it difficult to overcome the dollar’s advances, rising only marginally. The kiwi was unable to hold onto the $0.72 level, having popped above it following stronger-than-expected jobs figures out of New Zealand.

The Canadian dollar was another laggard today, getting only a limited boost from higher oil prices, which have soared to one-year highs after OPEC said it expects the oil market to remain in deficit in 2021.

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.