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Inauguration buoys equity markets, lowers dollar

USD - United States Dollar

On the heels of the inauguration of the 46th President of the United States, demand for the US dollar fell as equity markets rose.

Investors have continued to be optimistic in the markets and the future of the US economy. With a large relief package already proposed by President Joe Biden’s administration, and additional efforts to halt the spread of COVID-19 investors don’t have a great need for cash. As such, they have put their investments directly into equity markets.

Demand for the US dollar fell throughout the day yesterday and flattened out this morning.

Key Movers

The euro underperformed ahead of yesterday’s European Central Bank’s policy meeting. The euro has been held back from recent global market rallies, with ongoing concerns that President Christine Lagarde could discuss the requirement for further propping up of the Eurozone economy. She said this morning that no policy is off the table. But there were no changes to the purchasing program that was updated in December.

Great British pound was boosted by stronger than expected inflation data yesterday. The Consumer Price Index year-on-year was released at 0.6%, marginally better than the expected 0.5%. It strengthens the argument that the Bank of England does not need to enact any more interest rate cuts in the near term. Beyond this, sterling’s strong performance over the cause of yesterday and today can be attributed to a broader buoyant investor sentiment and stock markets in the green, as risk sentiment floods back into the markets. Sterling broke above its key psychologically significant 1.37 marker against the US Dollar overnight.

The Australian dollar advanced through trade on Wednesday. Having touched intraday highs at 0.7760 the AUD again struggled to extend toward and through 0.78. While commodity currencies lead gains, a wrinkle potentially putting medium term AUD upside at risk appears to be emerging. Reports of an increased number of community transmitted COVID-19 cases in China could weigh on ongoing AUD upside. With selected regions imposing strict lockdown measures, an uncontained spread within China could derail the economic recovery driving the global rebound.

Expected Ranges

EUR/USD: 1.21 - 1.216 ▼

GBP/USD: 1.364 - 1.374 ▼

AUD/USD: 0.773 - 0.778 ▲

USD/CAD: 1.259 - 1.265 ▼