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Citi Wealth Insights

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Vaccine and US fiscal stimulus dominate the headlines but investors watching equities

USD: Last week’s major drivers in spot FX include –
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A tumultuous week this past week, what possibly gives this coming week?

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).
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Optimism relating to US fiscal stimulus plans vs US – China tensions and ever expanding vaccine delays/ extended lockdown in Europe

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.
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Rally in risk assets and FX continues as investors await President Biden’s infrastructure plan in February

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.
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A sharp rally in risk assets as Biden’s inauguration fuels hopes for US fiscal stimulus and vaccine rollout but note the warnings

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.
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USD modestly weaker (-0.15%) on dovish comments from Fed Chair Powell and Biden’s fiscal headlines

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.”
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