The future of the dollar lies in the hands of US President Joe Biden and Fed Chairman Jerome Powell. Earlier this month, Democrats took control of the Senate, so chances are the government will decide to adopt a large aid package. The completion of the two-day Fed meeting will indicate Powell's stance on this issue, but most likely, he will side with the president since both of their interests coincide with each other. Aside from that, Powell has repeatedly said that the central bank has done enough to protect the economy, so now, a change in the US fiscal policy should be made, which Joe Biden is trying to bring by pumping it with another trillions of dollars.
Rapprochement on this issue will put pressure on the US dollar, as the new money supply is likely to pull its position down in the market.
With regards to the Senate, Chuck Schumer became the Senate Majority Leader, while the swearing-in of senators Raphael Warnock, Jon Ossoff and Alex Padilla equalized seats in both houses. Now, both Republicans and Democrats have 50 seats in the Senate, but the advantage of Democrats is that Vice President Kamala Harris holds the post of Senate President, so she can vote if the positions of other members on any issue are equally divided.
Meanwhile in the EU, the European Central Bank announced yesterday that it will continue its moves in the securities market for a long time, in order to ensure sufficient access to affordable funding. Such a statement put more pressure in the euro, which is already under bearish pressure after weak reports on the German economy.
"The ECB will ensure that funding conditions are maintained at a favorable level," said Christine Lagarde.
Currently, the ECB is pumping money into the EU economy by buying bonds and issuing long-term bank loans. This move is set to reduce the cost of loans, which accordingly decreases the burden on governments.
Aside from that, board member Fabio Panetta also said the ECB can contribute to environmental policy through the implementation of its monetary policy. ECB President Christine Lagarde also made a number of statements on this topic.
In terms of inflation, spokesman and Ireland's central bank governor Gabriel MakhLouf said there is a low chance that the EU will succeed in achieving more than 2% in the near future, therefore, it is likely that the current monetary policy will remain unchanged for a long time. But if conditions improve in the financial sector, the ECB may reduce the volume of the aid package, which is being implemented through the PEPP bond purchase program.
Going back to the German economy, indicators have fallen quite strongly recently, as extended restrictive measures continue to affect economic activity. The latest report showed that business confidence dropped to 90.1 points this January, which is lower than the expected 91.8 points. The assessment of current conditions, as well as the index of expectations, also deteriorated this month, falling to 89.2 points and to 91.1 points, respectively.
On the bright side, the German Health Ministry announced that the European Medicines Agency will soon approve the COVID-19 vaccine developed by AstraZeneca and the University of Oxford. This will help speed up the vaccination of the population, which will accordingly lead to faster opening of the European economy. A meeting of EU officials with AstraZeneca is expected to take place shortly.
But in Italy, the situation is still bad. Budget deficit is expected to become more severe this year, mainly due to the extension of quarantine measures. The worst-case scenario is a slowed economic growth, that is, by only 4.5%. According to the latest data, the Italian public debt may exceed the forecast, jumping to a level of 158.5% of GDP.
As for EUR/USD, the picture is still the same. The bullish trend will resume only if the quote breaks above 1.2190, as such a move will bring the euro towards 1.2230 and 1.2280. But if the bears regain control over 1.2140, the euro may drop towards 1.2090, and then to 1.2055.
