J. Biden's expected approval on the decision of the Congress (Upper and Lower House) regarding the stimulus measures to help the US economy and its citizens in the amount of $ 1.9 trillion, failed to make an impact on global markets.
Such investors' mood can be explained by the fact that this event is no longer considered as news, and the markets often follow the old and good principle of "buy on expectations and sell after the fact." Generally, it can be said that the specified topic has already been exhausted, therefore, new impulses are necessary for the stock markets to continue rising. Perhaps, it might be unexpectedly good economic statistics or something else, but at the moment, one thing is clear – the approval of the aid package to support the national economy will stimulate the growth of US inflation. The government debt market has already reacted to the actions of Biden, congressmen, and senators. In this case, treasury yields rose again.
So, the yield of the benchmark of 10-year Treasuries showed growth of 3.53%, that is, to 1.581%, which clearly confirms the assumption that investors in the government bond market have begun selling the currencies again, fearing that inflation in the country will be inevitable and that it can accelerate with all the negative consequences in the currency markets. It should be noted that this has been declining for the last 10 years, worsened by unsecured liquidity. This process has strengthened during the pandemic and will only increase amid new infusions generated by the stimulus measures, with the amount of 1.9 trillion dollars.
Analyzing the current situation, it is possible that the Treasury yields will continue to grow in the near future, which has a negative effect on the market prospects. This could lead to the fact that the US dollar will continue to receive support from major currencies. In turn, gold and other precious metals will remain under pressure. It was previously mentioned that gold's price will decline in the next year or two to the 2019 levels.
On another note, next week's dynamics in the market will largely depend on the upcoming statistics and the result of the Fed's monetary policy meeting, which will be held next Tuesday and Wednesday. In addition, investors will clearly pay attention to the situation around the vaccination of the population of economically developed countries and the impact of the COVID-19 pandemic.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1960. We believe that it will further decline to 1.1840 on the wave of USD strengthening.
The GBP/USD pair is trading above the level of 1.3940. UK GDP data failed to support the pair, which is strongly affected by the US dollar's behavior. We believe that if US Treasury yields continue to grow, the pair will decline to 1.3855 after it breaks through the level of 1.3940.
