The Takeaway …
Across seven of ten major currency pairs the dollar exhibited continued weakness after two pandemic related events. First, there was the meeting between President Joe Biden and ten Republican senators. The President released a statement that signaled that he preferred the Democratic-controlled Congress pursue the reconciliation, a stream-lined process for getting approval of $1.9 trillion in spending on Mr Biden’s “American Rescue Plan.” The GOP senators wanted a package price tagged at $618 billion.
The second event will be actual voting on rules that provide instruction in the House on determining how revenue and spending targets be reconciled with appropriate changes in existing legislation. That vote begins today around 6:30 EST.
The main takeaway at this juncture is that the US government will have to borrow funds to finance Mr Biden’s plans and there is conjecture that Treasury will have to borrow more than the $1.9 trillion that Mr Biden is requesting. Central banks from emerging and commodity-driven economies are preparing to ramp up their reserves of the US dollar in order to buy up Treasurys when the debt is issued for purchase. Interest rates on the debt and yields are expected to inch up which theoretically should be accompanied by increased demand for the dollar. The Federal Reserve’s $120 billion per month of debt combined with other central purchases of US debt may work to create a supply of dollars to tamp down the dollar price.
| Currency pairs | Exchange Rate as of 4:45 pm EST 1 February 2021 | The event | Post Event-Exchange Rate as of 2:00 pm EST 2 February 2021 | Impact |
| AUD/USD | 0.7641 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 0.7585 | USD strengthening |
| USD/CAD | 1.2776 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 1.2811 | CAD strengthening |
| USD/CNY | 6.4267 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 6.4551 | USD weakening |
| EUR/USD | 1.2135 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 1.2019 | USD strengthening |
| USD/INR | 72.8760 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 72.9415 | INR weakening |
| GBP/USD | 1.3699 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 1.3654 | USD strengthening |
| USD/JPY | 104.6400 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 105.0700 | USD strengthening |
| USD/MXN | 20.5641 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 20.1798 | USD weakening |
| USD/DKK | 6.1262 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 6.1874 | USD strengthening |
| USD/NOK | 8.5474 | Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus | 8.6173 | USD strengthening |
The news scan …
Both houses of Congress were preparing to take the first steps forward on U.S. President Joe Biden’s $1.9 trillion COVID-19 relief package, with initial votes on Tuesday launching efforts to fast-track passage. U.S. Congress readies first steps toward $1.9 trillion COVID-19 relief bill | Reuters
Several central banks have ventured into unusual territory in the opening weeks of this year, announcing currency sales in advance as they tread a delicate line between dulling the impact of a sliding dollar and dodging the ire of the US Treasury. Central banks take rare step of flagging currency sales in advance | Financial Times (ft.com) https://www.ft.com/content/0383f3a4-41a0-464a-b831-fd1a09a6b1b0
As the Treasury Department holds its largest auctions on record, global central banks could play a familiar role in helping to sop up the deluge of debt supply set to hit markets this year. Here’s why foreign central banks are set to reprise role as big buyer of U.S. government debt (msn.com)
The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing[1] for the January – March 2021 and April – June 2021 quarters[2]. TREASURY ANNOUNCES MARKETABLE BORROWING ESTIMATES | U.S. Department of the Treasury
