Dollar shrugs at Biden stimulus plan

Currency markets are unmoved by Biden wish-list

Currency markets entered a holding pattern overnight, ahead of the Biden stimulus release, and have remained to circling in Asia this morning. Part of the reason is that the fiscal package contents were well telegraphed beforehand and contained no reactionary surprises. The stimulus package comes with an impressive headline figure of USD1.90 trillion. None of it appears to be funded by tax increases, so another torrent of bond issuance is on the way.

This past week, a significant driver of currency movement, US Treasury yields drifted overnight, with poor Jobless Claims and a very dovish Jerome Powell dampening upward pressure from the Biden package. Thankfully, Federal Reserve Chairman Jerome Powell signalled overnight that tapering the Fed’s bond-buying targets was not on the table, nor would it be for the foreseeable future.

The dollar index edged lower by 0.13% to 90.25 in directionless trading and is unchanged in Asia today. EUR/USD and USD/JPY were almost unchanged, although GBP/USD, NZD/USD and AUD/USD also rose by 0.60% ahead of the Biden stimulus announcement. All three have pro-cyclicals have seen some profit-taking in Asia today.

Although the Chinese yuan held steady at 6.4700 today after the PBOC fixed USD/CNY at a neutral 4.4633, Asian regional currencies renewed their ascent overnight versus the US dollar. The Singapore dollar, Korean won, Indonesian rupiah and Malaysian ringgit all traced out modest gains, as investors returned to the pro-cyclical recovery trade after dollar strength faded. Asia trading has been very muted though, with most regionals unchanged on the day.

Asia markets appear content to coast out the last day of the week, with the data calendar international very low on releases likely to have much market impact. The last weekend of the Trump presidency may also be discouraging new position-taking as attention turns to next week’s inauguration.

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