Citi Wealth Insights

USD: Last week’s major drivers in spot FX include –

USD: Risk sentiment is mixed Friday as US equities decline sharply while the VIX Index (measure of equity market volatility) closes at the 2nd highest level for January at 33.09% (previous high was 37.21% on January 27).

USD: US fiscal stimulus expectations continues to support the risk rally despite declining potential for a bipartisan COVID-19 related spending package based on the $1.9trn Biden proposal to deliver stimulus checks to individuals.

USD: The rally in risk assets continues, driven by vaccine and economic recovery expectations for the most part in 2020 and more recently, from expectations about US President Biden’s 2-part fiscal spending plans.

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.”