Morning Report – Tuesday 19th January

Jon Robson, Head of Trading

“All eyes are on Yellen’s testimony later today. It is expected that she will affirm the U.S.’s commitment to market-determined exchange rates and make clear the country doesn’t seek a weaker dollar for competitive advantage however, in the past has highlighted the negatives of a stronger dollar.”

Main Headlines

President-elect Joe Biden’s incoming administration rejected a move by President Donald Trump to rescind coronavirus-related travel bans for non-American citizens arriving from the European Union, the U.K. and Brazil, which means the curbs will stay in effect.

The EU will today unveil a plan to strengthen the global role of the euro as it aims to erode the dollar’s dominance and insulate the bloc from financial risks, including U.S. sanctions. Bolstering the single currency’s architecture and tapping growing markets like green finance are among recommendations in a draft of the plan, which notes that sanctions inhibit the EU’s ability to advance foreign policy objectives.

GBP

The pound is slightly higher against the euro and dollar overnight. Boris Johnson is triggering fears among Britain’s G-7 peers that he could set up a rival alliance to counter China. The PM invited South Korea, India and Australia to the G-7 summit in June. Italy, Germany, France and Japan oppose the expansion, which could be a step toward restructuring the G-7, officials said.

EUR

The euro has started to find bids again versus the dollar in early morning trading today. Giuseppe Conte’s ambition to continue as Italy’s prime minister faces a crucial test Tuesday with a confidence vote in the Senate, after he won a similar vote in the lower house of parliament late Monday.

USD

The dollar is weaker against most G10 currencies ahead of U.S. Treasury Secretary nominee Janet Yellen’s testimony before the Senate Finance Committee later. The hearing is likely to feature topics from foreign-exchange policy to taxes, but it will also serve as the first congressional forum where lawmakers will vet President-elect Joe Biden’s $1.9 trillion Covid-19 relief plan.

Markets

Most Asian equities rose with U.S. and European stock futures overnight as investors awaited comments from Treasury Secretary nominee Janet Yellen on stimulus and the dollar. Bond yields ticked up. S&P 500 and European contracts advanced and 10-year Treasury yields climbed to about 1.11%. The yen dipped, while most risk currencies were supported.

Main Economic Data/Central Banks/Government (All times GMT)

7:00 a.m.: Germany Dec. CPI
9:00 a.m.: ECB Nov. Current Account
9:00 a.m.: Italy Nov. Trade Balance
10:00 a.m.: Germany Jan. ZEW Survey
6:00 p.m.: BOE’s Haldane speaks

EU finance ministers meet
European Commission to circulate plan for vaccines coordination
Atlantic Council Global Energy Forum

Corporate Events

Earnings include BofA, Goldman, Charles Schwab, Netflix