US dollar higher ahead of Powell, oil dips

Markets await Fed’s Powell

Another relatively mixed session on Thursday, with the US opening marginally higher ahead of the open as investors weigh up reported stimulus plans from the incoming Biden administration.

While the promise of more Covid relief is good news for the economy and markets this year, fears that it could prompt the central bank into tapering asset purchases have raised yields. Policymakers this week have sought to ease those concerns, with some success, but reports that Biden is targeting a USD2 trillion package has lifted yields once again.

Fed Chair Jerome Powell is due to speak later in the day and will likely echo much of what his colleagues have been saying this week. These markets are craving that reassurance though, with the central bank having been pivotal in sustaining these markets over the last 10 months.

In many ways, it feels like investors are just trying to get through this week. US politics has become a distraction for the markets and the sooner we move on from the current limbo the better.

Earnings season kicks off tomorrow as well and there may be an element of investors waiting to see the early financial reports to get an idea of how the coming weeks are going to be.

Oil pulls back as OPEC maintains growth forecasts

Oil prices are pulling back a little again today after once again rallying strongly over the last week and adding to impressive gains since the start of the year. In its latest monthly report, OPEC left its demand forecasts for this year unchanged, but highlighted the risks to the economic recovery this year which will naturally impact these forecasts in the coming months.

Ultimately, oil prices look pretty comfortable above USD50 after OPEC+ last week provided further support to the markets in the current challenging environment. We may see a minor pullback now, especially if the dollar continues to see further support from rising yields, but I don’t expect it will be overly significant as traders appear to have full faith in the cartel to respond accordingly and quickly.

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