On Tuesday, the dollar index paused, giving up 0.47 percent to 90.04 points, while the euro added 0.49 percent to 1.2208 dollars. However, after its low session on 6 January, the greenback has bounced 1 percent, taking advantage of higher interest rates and growth forecasts in the future, thanks to the anticipated economic rebound.
Backed by the expectations of fiscal stimulus from the Biden administration, the 10-year T-Bond return continued to rise, hitting 1.18 percent in Tuesday’s session, returning to its March 2020 rate, up from 0.9 percent a week earlier. However, at the close, the rate dropped to 1.14 percent. Risk aversion and expectation of a huge influx in sovereign debt issuance to fund stimulus efforts have driven investors into selling bonds in recent days, driving interest rates up mechanically, especially long-term ones.
On Tuesday, multiple Fed members spoke, including Dallas Fed President Robert Kaplan. The latter was very positive about the 2021 turnaround, with an estimated turnaround of 5 percent of GDP and a 4.5 percent to 4.75 percent reduction in the unemployment rate. According to Mr. Kaplan, it is enough to start dreaming about “tapering” i.e. a decline in the purchasing of securities by the central bank, which has been buying bonds massively since March 2020 to help the markets.
However, two other Fed officials were much more calculated on “tapering.” Richmond Fed President Thomas Barkin said it would take a long time before beginning a debate on the topic for the Fed to see major changes in wages and inflation. And Raphael Bostic, the Atlanta Fed’s manager, doesn’t see any monetary policy changes this year and believes there’s already going to be a lot of change to be seen before the asset buyback policy is re-examined.
On the political front, Democratic senators continued their effort to impeach the outgoing president six days after Donald Trump’s followers aggressively infiltrated the Capitol, accusing him of “inciting insurrection.” The bill will be discussed in the house on Wednesday, and if passed, it would also require a two-thirds vote in the Senate, which would be hard to achieve. Another resolution calling for Vice President Mike Pence to oust Donald Trump from office early will be proposed on Tuesday in the House.