Citi Wealth Insights

USD: Risk – on sentiment fuels a sharp rally in risk assets overnight but leaves the broad based USD Index flat around 90.50 – Biden’s inauguration as US President fuels optimism in his USD1.9tn stimulus plan. However, Citi analysts warn of risks in getting Congressional approval, given significant Republican opposition and expect a much less $500bln-$1trln in new COVID-19 relief while also emphasizing the considerable uncertainty around any bipartisan agreement.

USD: Fed Chair Powell on inflation overshoots and QE tapering - Powell overnight confirms the dovish overtones of some of the recent Fed speak, saying the Fed would tolerate a sustainable overshoot of its 2% inflation target, and would not seek to “hike rates anytime soon.”

USD: Headwinds to current vaccine timelines and Q1 growth expectations materializing – the overnight session sees USD almost universally bid with interbank volumes roughly 35% above average as the broad based USD Index (DXY) trades 0.66% higher towards 90.70 alongside higher US bonds yields and (paradoxically) stronger risk averse sentiment on rising headwinds to current vaccine timelines and spreading Covid-19 infections.

While political news causes markets to rise or fall, the impact of government decisions is likely to be priced in swiftly. Citi analysts caution investors to follow vaccines, not politics. Despite the uncertainty associated with global government actions, COVID-19's eventual defeat remains the major factor that may drive investment returns in 2021-22.

USD: Talk of additional US fiscal stimulus on the back of the blue wave sweep fails to weaken USD -

USD: Widening US trade deficit on strong imports to be watched as a driver of USD weakness - the US trade balance widens to -$68.1 billion in November from -$63.1 billion in October, higher than consensus for -$67.3 billion but closer to Citi analysts forecast for -$67.9 billion.