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·         Dollar on back foot with Fed’s Powell likely to sound dovish note

 

The dollar was stuck on the back foot against major peers on Wednesday as markets wait on comments from Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy.

 

The greenback held declines against riskier currencies, with pandemic recovery hopes getting a boost as the International Monetary Fund upgraded its forecast for 2021 global growth.

 

The Fed chair is due to speak at a news conference after the central bank’s two-day policy meeting that ends Wednesday.

 

Earlier this month, he said in a web symposium with Princeton University that the U.S. economy is still far from the Fed’s inflation and employment goals, and it is too early to discuss altering monthly bond purchases.

 

The dollar index ticked up 0.1% to 90.253 on Wednesday in Asia, following a 0.2% decline the previous session.

 

The gauge has been consolidating since bouncing off a nearly three-year low of 89.206 at the start of the month.

 

The British pound climbed to its highest since May 2018 at $1.3753 before trading slightly lower at $1.3724.

 

The greenback gained 0.1% to 103.72 yen following a similar-sized decline overnight.

 

The euro was mostly flat at $1.2153 after rising around 0.1% in the previous session.

 

 

·         GBP/USD Price Analysis: Cable retreats from 32-month high as S&P 500 futures drop

 

GBP/USD has erased gains, with the US stock futures pointing to a weakening of risk sentiment.

 

The currency pair is currently trading mostly unchanged on the day near 1.3730, having printed a high of 1.3752 early Wednesday. That was the highest level since May 2018.

 

The pair has pulled back from 32-month highs, seemingly tracking the decline in the US stock futures. The S&P 500 futures, which were flat early today, are now down 0.30%, signaling renewed risk aversion and possibly drawing bids for the dollar.

 

However, GBP/USD's immediate technical bias remains bullish, as the higher lows and higher highs setup on the daily chart is still intact. Acceptance under Tuesday's low of 1.3609 would invalidate the higher lows setup and shift the attention to the 50-day Simple Moving Average (SMA), which restricted the downside two times in December. The 50-day SMA is currently located at 1.3483. 

The pair jumped 0.43% on Tuesday, printing a higher low at 1.3690 as Biden administration's plans to boost vaccine supplies and the International Monetary Fund's upward revision of global growth forecasts boosted risk appetite and weighed over the anti-risk dollar.

 

·         Little change expected as Fed ends first meeting of Biden era

The Federal Reserve will on Wednesday conclude its first meeting since US President Joe Biden took office, and while the central bank is certain to comment on the health of the country's economy amid the Covid-19 pandemic, analysts say it's unlikely to change its main policies.

 

The policy-setting Federal Open Market Committee (FOMC) will almost certainly keep interest rates at their rock-bottom level following the conclusion of its two days of deliberations, held as the world's largest economy endures the worst coronavirus outbreak globally with a death toll topping 420,000.

 

But markets will nonetheless closely follow the statement released after the meeting and Fed Chair Jerome Powell's press conference to see if policymakers remain optimistic about US growth prospects.

 

"The Fed has been consistent in the view that the course of the virus determines the course of the economy. The surge in cases, hospitalizations and fatalities since the last meeting has been staggering," said Grant Thornton economist Diane Swonk.

 

And it will be up to Janet Yellen, Powell's predecessor as Fed chief who is now Biden's Treasury secretary, to take up the lead in pushing that stimulus package through Congress.

 

"The Fed and Treasury will need to work closely to limit damage to the economy going forward. I can't imagine a closer and more collegial alliance than that between Powell and Yellen," Swonk said.

 

·         Global COVID-19 cases surpass 100 million as nations tackle vaccine shortages

 

Global coronavirus cases surpassed 100 million on Wednesday, according to a Reuters tally, as countries around the world struggle with new virus variants and vaccine shortfalls.

 

·         Mexican president felt unwell before commercial flight, took COVID-19 test later: spokesman

 

·         U.S. Senate's Schumer: vote on budget to pave way for COVID-19 aid possible next week

 

U.S. Senate Majority Leader Charles Schumer said he informed Democratic senators Tuesday that a vote on a budget resolution, a possible first step toward passing another round of coronavirus relief using a procedural tool called “reconciliation,” could come as early as next week.

 

“I informed senators to be prepared, that a vote on a budget resolution could come as early as next week,” Schumer told a press conference.

 

·         U.S. Senate confirms Biden nominee Blinken as secretary of state

 

The U.S. Senate on Tuesday confirmed President Joe Biden’s nominee, veteran diplomat Antony Blinken, to serve as secretary of state.

·         U.S. says $35 billion more in pandemic loans approved, trying to fix program snags

 

The U.S. Small Business Administration (SBA) on Tuesday said it had approved 400,000 more pandemic relief loans worth $35 billion and was trying to fix issues operational snags with the program raised by lenders.

 

The SBA launched the third round of the Paycheck Protection Program (PPP) this month, but significant changes to its rules, process and technology platform, has caused problems that were slowing approvals, a bank group said on Tuesday.

 

Companies looking to apply for a second PPP loan were encountering technical hurdles the American Bankers Association said, while lenders are also receiving a “high number of incorrect error messages” when they submit loan applications.

 

·         Fragile recovery seen in global labour market after huge 2020 losses: ILO

 

Some 8.8% of global working hours were lost last year due to the pandemic, roughly four times the number lost in the 2009 financial crisis, but there are “tentative signs” of recovery, the International Labour Organisation (ILO) said on Monday.

 

·         Biden speaks to Putin for first time since taking power: White House

 

U.S. President Joe Biden spoke to Russian President Vladimir Putin on Tuesday for the first time since taking office and raised concerns about Russian activities including the treatment of jailed Kremlin critic Alexei Navalny, the White House said.

 

·         German consumer confidence falls as markets await Fed decision

 

Consumer confidence in Germany has fallen for a fourth month heading into February, not surprising given that the country is in another coronavirus lockdown. Chancellor Angela Merkel and state leaders agreed last week to extend the lockdown until mid-February.

 

The GfK research institute said its consumer sentiment index, based on a poll of 2,000 Germans, fell to -15.6 points from a revised -7.5 in January. It is the lowest reading since June. GfK researcher Rolf Bürkl said confidence was likely to remain muted into March.

 

·         Xi’s speech shows how Biden faces a very different China

 

Less than a week into U.S. President Joe Biden’s new administration, Chinese President Xi Jinping struck a confident tone Monday when he called for world leaders to cooperate more with China.

 

Xi’s keynote speech at the World Economic Forum’s virtual Davos Agenda event comes as the world waits for a new phase in U.S.-China relations under Biden, following former President Donald Trump’s single-handed approach.

 

China is on track to surpass the U.S. as the world’s largest economy in a few years and has gradually increased its global presence.

 

Countries will fail if they operate alone, Xi said Monday. He did not mention the U.S. or specific countries, but named the United Nations in a call for international cooperation.

China is ‘more assertive abroad’

In contrast to U.S. foreign policy under Trump, White House Press Secretary Jen Psaki said Biden’s administration will begin its China policy with “patience” and consultations with allies. But she said Xi’s speech doesn’t change the U.S. position on China, whether regarding trade or technology.

 

·         China's industrial profits extend growth in December amid brisk factory recovery

 

Profits at China’s industrial firms grew for the eighth straight month in December, suggesting a sustained recovery as the manufacturing sector rapidly emerged from its COVID-19 slump.

 

Profits surged 20.1% year-on-year in December to 707.11 billion yuan ($109.40 billion), after rising 15.5% in November, the National Bureau of Statistics (NBS) data showed on Wednesday.

 

China is the only major economy in the world to avoid a contraction in 2020, with gross domestic product up 2.3% for the full year, while many countries remain crippled by the pandemic.

 

Economists polled by Reuters expect China’s GDP to rise 8.4% in 2021, the fastest pace in a decade. However, some analysts cautioned that a slower recovery in consumption and a potential rapid slowdown in credit growth could be risks for the Asian powerhouse.

 

China’s factory gate prices fell last month at their slowest pace since February, pointing to improving corporate profitability.

 

·         China money rates hit 21-month high on holiday demand, policy tightening worries

 

China’s short-term money rates extended rallies to over 21-month highs on Wednesday as investors worried that policymakers may be starting to shift to a tighter stance to cool gains in share prices and property markets.

 

Unlike the past few years, the central bank has not been making net liquidity injections into the banking system to meet strong demand for cash heading into the long Lunar New Year holiday. In fact, it has been draining funds, catching traders by surprise.

 

The holiday starts on Feb. 11 this year.

 

On Wednesday, the volume-weighted average rate of China’s benchmark overnight repurchase agreements, or repo, traded in the interbank market climbed to 2.976% by late morning, up 20.14 basis points on the day and the highest level since April 17, 2019.

 

The seven-day repo jumped to 6.0%, it highest since June 27, 2018.

 

·         Japan’s vaccine rollout faces logistics hurdles ahead of the Olympics

 

·         Japan likely to extend COVID-19 state of emergency

 

A growing number of people in the administration of Prime Minister Yoshihide Suga and Japan's ruling party believe it will be necessary to extend the state of emergency for parts of the country continuing to see a high number of coronavirus cases, sources familiar with the matter said Tuesday.

 

The state of emergency, which entails urging the public to refrain from going outside unnecessarily and asking restaurants and bars to shorten their opening hours, could remain in place until the end of February, the sources said. The current end date is Feb 7

 

·         Taiwan says chipmakers to prioritise auto chips

 

Taiwan Economics Minister Wang Mei-hua said on Wednesday she had met with senior executives of four major Taiwanese chipmakers who told her they were willing to prioritise supplies for auto makers amid a global shortage of chips for the industry.

 

Wang told reporters that the chipmakers said they were willing to increase capacity to supply auto chips as much as they could and negotiate with other clients to put supplies for auto chips first.

 

But she said the chip shortage issue will take time to resolve.

 

·         Nationalism ‘is not the way forward’: New Zealand minister calls for more trade relationships

 

·         Oil rises as U.S. oil stockpiles drop, new Chinese Covid-19 cases decline

 

Oil prices climbed on Wednesday after industry data showed U.S. crude stockpiles fell unexpectedly last week and China, the world’s second-biggest oil user, reported its lowest daily rise in Covid-19 cases, bolstering hopes of a pick-up in demand.

 

Brent crude futures climbed 19 cents, or 0.3%, to $56.10 a barrel at 0452 GMT, adding to a small gain on Tuesday.

 

U.S. West Texas Intermediate (WTI) crude futures rose 20 cents, or 0.4%, to $52.81 a barrel, reversing Tuesday’s loss.

 

“WTI is slightly firmer on the back of a larger-than-expected draw in US crude inventories reported by the API, which is offset by builds in gasoline and distillates,” said Vandana Hari, oil market analyst at Vanda Insights.

 

The American Petroleum Institute (API) reported crude oil inventories in the United States, the world’s biggest oil consumer, fell by 5.3 million barrels in the week to Jan. 22 compared with analysts’ expectations in a Reuters poll for a build of 430,000 barrels.

 

However, the data showed gasoline stocks rose by 3.1 million barrels, which was much more than expected.

 

The API data showed distillate fuel inventories, which include diesel and heating oil, rose by 1.4 million barrels, compared to expectations for a draw of 361,000 barrels and refinery runs fell by 76,000 barrels per day.

 

·         Biden's new climate orders to include pause on federal oil and gas leasing: sources

Reference: Reuters, CNBC, FXStreet, The Guardian