FEBRUARY 01, 2021

The U.S. Dollar is starting February a bit stronger after January proved to be a tough month for peers to find merit in keeping with the rally of last year’s end.
Overview
COVID-19 infections have delayed the progress in the economic recovery markets have been riding on and there are new doubts about how quickly spending and other financial measures can get the momentum going again. Q4 data across the board was not as terrible as expected, yet the physical threat remains and as long as the medical emergency continues there will be uncertainty clouding economic outlooks.

While there is a market frenzy taking over Wall Street over specific stocks, traders will pay attention to the potential for lowering the cost of the rescue spending package as President Joe Biden visits the Senate to discuss options.

The Euro weakened as a result of fear across markets that the economy is slowly coming around but particularly dragging for Europe. Friday indicated that the contractions expected in Gross Domestic Product for Q4 did not materialize, despite a return to shutdown measures, but the beginning of 2021 is not producing the type of situation that merits Euro to climb.

European Central Bank officials have pointed out that inflationary growth is very low and that the expectations for pre-COVID growth is not until 2022, way worse than for China, who is seeing advancement, and other regions that are predicted to be OK by the year’s end. The EU must concentrate on combating the disease and accelerate plans for spending to rebuild a devastated services industry also affected by Brexit.

EUR ⇓
The shared currency is down to its weakest prices since January 5th, just at the cusp of being below its worst level of 2018. GDP figures for Q1 revealed a 0.4% expansion, meeting the low expectations that economists foresaw. Frankly, the environment is healthy, but the growth pace is low and could become worrisome if it does not pick up in Q2.

The European Central Bank has based its potential tightening stance on the consistency of widespread recovery, but Italy is dragging and the bigger economies are only expanding at measly levels. Hiking interest rates for 2019 may still be delayed further. Producer Prices are scheduled for tomorrow, which will help gauge if there is enough inflationary growth in business activity.

GBP ⇓
The Pound was the biggest mover among the majors in January as it appreciated by 1.0%. This could crumble this month as traders seem to believe there is still a chance that the Bank of England will need to exercise further measures to aid the economy, including the use of negative interest rates someway somehow.

While vaccine rollout continues and hopefully COVID fades somewhat, the focus will be on the economics of pos-Brexit trading and any efforts to get a financial-services deal since London is bleeding jobs and the EU is demanding more banking presence and clearing in EU nations.