It will be a quiet week, without any central bank meetings and only a handful of data releases. Some remarks by the Fed chief could attract attention, but the overall focus will remain on Congress, where the new relief package is finally taking form. The question for markets is whether the narrative of US economic exceptionalism can continue to push both the dollar and equity markets higher, and whether the dollar is slowly losing its safe haven status, becoming more aligned with US fundamentals.
Dismal Europe making USD great again?
It has been a long time since the dollar and stock markets powered higher simultaneously, but here we are. There has been a striking shift in dollar dynamics ever since the Democrats took control of the US Senate, with the reserve currency now responding positively to promises of massive spending packages, as the brighter outlook for the economy eclipses deficit concerns.
The logic is that if all this spending turbocharges the US recovery, the Fed could start scaling back its QE program sooner than other central banks, and speculation around this has brought the dollar back to life. The other side of this coin is the mess in Europe. Not only is the economy struggling because of the never-ending lockdowns, but most of the Eurozone has also fallen way behind in the global vaccination race, and there isn’t much stimulus in the pipeline either.