Daily Market Recap - The Dollar Declines Even Further

The Dollar fell again Wednesday against the British Pound, taking the GBPUSD to a new high in nearly three years as Forex traders feared the U.S. stimulus package would weigh on the greenback. The GBPUSD is currently trading up 0.73 percent over a five-day timeframe and looks set to continue its steady climb towards the 1.40 mark.

“The weakness of the greenback against Joe Biden's stimulus package, the effective rollout of the vaccine in the United Kingdom, and the reduced likelihood that the Bank of England (BoE) will adopt a negative rate have given the pound a great start to the year,” summarized Connor Campbell, an analyst at Spreadex.

On the U.S. side, investors are wondering whether Joe Biden's $1.9 trillion stimulus package might overheat the economy, which could create inflation and weigh on the dollar. Questions are still being raised over the necessity of such a large stimulus plan with most economic indicators pointing to a steady ongoing recovery in the market.

Forex traders are particularly concerned about the U.S. Federal Reserve's (Fed) promises to maintain a loose monetary policy even if inflation slightly exceeds its 2% target. The idea of loose inflation running rampant has weighed on the outlook of the US Dollar.

In contrast, in the U.K., the post-Brexit agreement reached in late December and the ongoing immunization campaign are allowing the market to focus on a recovery in the U.K. economy without the need for the BoE to take any further action.

With the dollar and the pound in the spotlight, “Fed Chairman Jerome Powell's speech at 19:00 GMT, but also two hours earlier that of his BoE counterpart Andrew Bailey,” will be closely scrutinized for any signs of a change in the policy says Markets.com analyst Neil Wilson.

(Chart Source: Tradingview 10.02.2021)

The Dollar Index has tested its immediate support level around the 90 marks today. A break below may send the British Pound over the 1.39 short term top and condemn the greenback to further downward pressure into the end of the week.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.