USD

Sentiment for the dollar increased throughout yesterday and during overnight trading as investors sort to take advantage of rising US treasury yields. The rise in US treasury yields follows progress in the US Covid vaccination rollout, moves by the US president Joe Biden to pass more fiscal stimulus and improving economic data. The prospects of higher debt issuance and a booming economy have prompted a sell-off in bonds raising their yields.

According to the latest figures released by the ADP jobs report, 174,000 positions were added to ADP payrolls far exceeding the 49,000 increase that had been forecast. Whilst the ISM services PMI (Jan) exceeded expectations of 56.8 to read 58.7. A positively bullish reading for the US.

EUR

News that former Head of the European Central Bank Mario Draghi could help form a government in Italy to help solve its political crisis wasn’t enough to significantly move the euro yesterday.

Italy’s President Sergio Mattarella asked Draghi to form a non-political government to steer Italy through the Coronavirus after last ditch talks to salvage the collapsed coalition of outgoing Prime Minister Giuseppe Conte had failed.

Draghi will now hold talks with political parties to try and muster support in Parliament for an administration which will need to combat the COVID pandemic and economic crisis facing Italy.

Up until now, currency markets have taken the political situation in its stride, with the main market mover being COVID related news. However, failure to form a new government and the prospect for fresh elections could weigh negatively on the euro if a solution isn’t found.

Key announcements

10:00 – EUR – Retail Sales (YoY) (Dec)
12:00 – GBP – Bank of England Interest rate decision expected to hold rates at 0.1%