07/01/2021

Dollar falls as Democrats win the US Senate


USD

The US dollar fell to three year lows on Wednesday as the Democrats won control over the US senate, clearing the way for a larger stimulus under new president Joe Biden. A democrat controlled state is seen by financial markets as helping global economic growth and favouring riskier assets, while negative for the US dollar and bonds as the US budget and trade deficits would likely grow.

A more extensive fiscal policy is likely to be advocated by Joe Biden and this is currently weighing on the dollar pushing it lower as the market is starting to price this in. Furthermore, the dollar was unfazed by the disruption caused in Washington as Trump supporters protested and broke into the Capitol.

GBP

The events in the US impacted the British currency and so Sterling remained highly volatile. With the Democrats winning control over the US senate, this led to a brief upside in the pound due to dollar weakness. The outlook for the pound remains uncertain as further damage to the economy will occur due to a new national lockdown.

Money markers are now predicting that an interest rate cut could be seen as early as May which will send interest rates into negative territory and hurt the pound. However this rate cut is dependent on whether the lockdown is extended and how the economy performs after it reopens.

Key announcements

  • 13:00 – USD – Unemployment claims – Forecast at 798k from previous 787k
  • 15:00 – USD – ISM Services PMI – Forecast at 54.5 from previous 55.9

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