Interbank market news scan: Biden ready to pull reconciliation trigger; central banks, cryptocurrency, foreign exchange

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The strategy takeaway …

The White House yesterday released the following statement on President Joe Biden’s meeting with GOP senators:

“The President and the Vice President had a substantive and productive discussion with Republican senators this evening at the White House. The group shared a desire to get help to the American people, who are suffering through the worst health and economic crisis in a generation. 

While there were areas of agreement, the President also reiterated his view that Congress must respond boldly and urgently, and noted many areas which the Republican senators’ proposal does not address. He reiterated that while he is hopeful that the Rescue Plan can pass with bipartisan support, a reconciliation package is a path to achieve that end. The President also made clear that the American Rescue Plan was carefully designed to meet the stakes of this moment, and any changes in it cannot leave the nation short of its pressing needs. 

The President expressed his hope that the group could continue to discuss ways to strengthen the American Rescue Plan as it moves forward, and find areas of common ground  including work on small business support and nutrition programs. He reiterated, however, that he will not slow down work on this urgent crisis response, and will not settle for a package that fails to meet the moment.”

The key word here is reconciliation. In this statement, Mr Biden is signaling that the GOP’s offer does not come close enough to his vision on spending. Reports have the Republicans promoting a pandemic relief package of approximately $618 billion while Mr Biden wants a package of $1.9 trillion. Given Democratic Party control of both chambers of Congress, Mr Biden may believe that fast tracking his measure through Congress is his best option. He can argue that he kept his promise to pursue a bi-partisan approach with the Republicans while keeping his campaign pledge to push a $1.9 trillion plan.

Reconciliation allows Democratic House leadership to issue instructions to its committees to make changes in existing law to support the proposed program costs. The House Budget Committee bundles together the committees’ recommended changes in spending and revenues and submits the bundled recommendations to the House floor for vote. When the reconciliation bill is sent to the Senate, the bill goes through an expedited process. Filibuster is not allowed and a simple majority would be all that is needed to pass in the Senate.

Traders should position themselves for a stronger dollar accompanied by higher yields and an uptick in inflation due to additional spending by consumers. The duration of dollar strengthening, in my opinion, will be determined by the type of spending generated by the bill. As I concluded yesterday, Mr Biden’s America Rescue Plan does not appear to provide funding for infrastructure projects and seems more of a band-aid for households. With the bulk of monies expected to go to households, I expect spending on consumer items, rent, and mortgages.

Currency pairsExchange Rate as of 4:45 pm EST 1 February 2021The eventPost Event-Exchange Rate as of 1:49 am EST 2 February 2021
AUD/USD0.7641Joe Biden meets with GOP senators0.7626
USD/CAD1.2776Joe Biden meets with GOP senators1.2824
USD/CNY6.4267Joe Biden meets with GOP senators6.4605
EUR/USD1.2135Joe Biden meets with GOP senators1.2066
USD/INR72.8760Joe Biden meets with GOP senators72.9740
GBP/USD1.3699Joe Biden meets with GOP senators1.3676
USD/JPY104.6400Joe Biden meets with GOP senators105.0200
USD/MXN20.5641Joe Biden meets with GOP senators20.2827
USD/DKK6.1262Joe Biden meets with GOP senators6.1539
USD/NOK8.5474Joe Biden meets with GOP senators8.5639
Sources: Federal Reserve, Reuters

In the news …

Australia’s central bank held rates at near-zero in a widely expected decision on Tuesday and said it would expand its bond buying programme by A$100 billion ($76.4 billion)from mid-April to help support jobs and boost inflation. Australia central bank expands QE by $76 bln, commits to prolonged easy rates (msn.com)

China’s central bank on Tuesday conducted 80 billion yuan ($12.36 billion) of reverse repos to maintain reasonably ample liquidity in the banking system. China’s central bank conducts 80b yuan of reverse repos – Chinadaily.com.cn

The news of NVIDIA Corporation (NASDAQ: NVDA) potentially restarting production of graphics processing units (GPUs) production is very good news for all those hoping for bitcoin mining GPUs. Cryptocurrency Miners Are Eagerly Awaiting News From Nvidia – MarketWatch

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