Dollar Edges Higher; Dovish Powell Limits Gains

Friday,   15-Jan-2021   02:52 PM (IST)

The dollar edged higher Friday after President-elect Joe Biden outlined his plans for additional stimulus, but gains are likely to be limited after Federal Reserve Chairman Jerome Powell declined to join any discussion about reducing monetary stimulus.  At 4 AM ET (0800 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 90.267, rebounding from last week’s near three-year low. USD/JPY was down 0.1% at 103.67, while the risk-sensitive AUD/USD was down 0.3% at 0.7753. Biden released details of his $1.9 trillion spending plan overnight, including more direct payments to households, an expansion of jobless benefits and an enlargement of vaccinations and virus-testing programs. The proposal has been expected ever since the Democrats won control of the Senate in early January, but questions over how his administration plans to foot the bill has driven Treasury yields higher, supporting the greenback. Still, gains are limited after Fed Chair Jerome Powell adopted a very dovish tone in a live-streamed interview on Thursday, although he didn't explicitly rule out a tapering of bond purchases toward year-end. The Fed doesn't expect to raise interest rates until 2023 at the earliest. Last Friday’s jobs report showed the U.S. lost 140,000 payroll positions in December, while the December CPI annual figure advanced 1.4%, still below the 1.7% average over the last 10 years. The Fed’s low interest rate policy and asset-buying program have weighed heavily on the dollar. There's an abundance of U.S. economic data to digest later Friday, including December retail sales, PPI and industrial production. Elsewhere, GBP/USD fell 0.2% to 1.3665 after data showed Britain's economy shrank by 2.6% in November, the first monthly fall in output since April and the country’s initial Covid lockdown. The economy is now 8.5% smaller than it was before the start of the coronavirus pandemic in February. EUR/USD fell 0.1% to 1.2140, only marginally dipping despite the political turmoil in Italy, the euro-zone’s third largest economy, with the ruling administration under pressure after a small party within the coalition withdrawing its support.