USD Weakens on Stimulus Bets as GBP Rises to a 2.5 Year High
The USD weakness was evident on Feb 9 as the currency slid against the Euro and the Pound. The USD weakness could be due to risk-off and improving risk appetite as traders shifted their funds to more volatile assets if the stock market's performance leads. However, the general trajectory of the greenback will anchor on stimulus headlines and comments from central bankers.
Governments and policymakers are confident of their economies in 2021. Since there is better coronavirus distribution and the infection rate is dropping, the economy's state hinges on stimulus headlines. On Friday, the Senate endorsed Joe Biden's $1.9 trillion stimulus package after Kamala Harris cast the tie-breaking vote. It appears to be a done deal of which the stock market will perform. On the other hand, the USD could shrink in the immediate term as more spending leads to bigger deficits. It could push the GBP higher. The Pound is already at a 2.5 year high versus the USD, boosted by the UK's faster coronavirus vaccine administration rate.
Impact on the USD:
Bearish. The $1.9 trillion stimulus package will weigh negatively versus the greenback even though the stock market will benefit. Still, whether the USD squeeze is over depends on whether prices will stabilize and investor sentiment shifts back to pro-USD.
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