The European currency started to decline against the US dollar on Monday, January 11, losing 0.53 percent and closing at 1.2154 after slipping by 0.61 percent in the previous session. Dollar index DXY also kept rising on Monday, rising 0.45% to 90.52.
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There is a decline in risk aversion and a rise in volatility in global markets, especially in the technology sector, while the US dollar is in demand as a defensive asset. The target of the interest of investors remains political battles in the United States, where the incumbent President Donald Trump’s second impeachment process was initiated on the eve of the Democrats, even though his term of office ends in a few days.
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The anticipation of a large-scale fiscal stimulus plan for the US economy, as reported by President-elect Joe Biden, is another important factor supporting the US currency, which could accelerate the country’s inflation growth and force the Fed to lift the main rate far faster than initially anticipated. The interest rate will continue at the present level, in line with the latest Federal Reserve strategy, until inflation hits the target value of 2% which will not last for some time at this level. At the same time, it is necessary to bear in mind that, as an additional factor for evaluating the direction of monetary policy, the Fed will use the degree of employment. It will take a considerable amount of time to recover pre-crisis levels, considering the underlying nature of existing unemployment in the United States, when a vast number of employees in the sectors impacted by the pandemic would have to change their skills. This will, in essence, prevent the Fed from working too fast to tighten the DCT.
Furthermore, the market for the dollar is fuelled by increasing worries about the rise in the global incidence of coronavirus infection. So, stringent quarantine policies continue to work in many nations, and on the eve of China, a lockout was enforced in the province of Hebei. Notably, the number of newly observed cases is currently at five-month highs in China.