Dollar Up; Stimulus Worries Weigh on Risk Sentiment

The dollar edged higher in early European forex trading on Tuesday, ahead of a Federal Reserve meeting. Worries over the timing and size of U.S. stimulus weighed on market sentiment.

The Dollar Index was up 0.2% at 90.547 at 3:05 AM ET (0805 GMT).

The USD/JPY pair was down 0.1% at 103.78 and GBP/USD fell 0.4% to 1.3620. The risk-sensitive AUD/USD fell 0.4% at 0.7675.

Over the last few months, risk sentiment has been boosted to the detriment of the safe-haven dollar. That is by hopes of additional U.S. stimulus to boost economic growth.

Bets that the greenback keeps falling, to extend a downtrend which began last March. Data showed they hit their highest in almost a decade last week. 

But doubts are starting to creep in about when and to what degree the $1.9 trillion stimulus package will be passed. Some Republican lawmakers are railing against the size of the bill.

Proposed by U.S. President Joe Biden, the stimulus package is to be largely financed by borrowing.

Meanwhile, coronavirus cases are surging and U.S. economic data points to a flagging pace in the recovery.

This week’s Federal Reserve meeting will be the first under the Biden administration, starting later Tuesday to conclude on Wednesday. The central bank has pledged to back the economy in any way it can.  

Rates are likely to be held steady. That is with further commentary about the outlook for an economic revival. 

The economic data slate is relatively light on Tuesday. However, attention will start to focus on the release of the Q4 GDP figure later in the week. 

It is expected to show that the country’s economic recovery has weakened while fighting the surging numbers of COVID-19 cases. 

EUR/USD

The EUR/USD pair fell 0.2% to 1.2108, over continued political uncertainty in Italy. The country’s Prime Minister Giuseppe Conte is expected to resign on Tuesday. 

This is with hopes that President Sergio Mattarella will give him a mandate. The mandate is to form a new government with broader backing in parliament.

This came after a junior member of Italy’s ruling coalition, led by Conte, quit last week. The move was due to the government’s handling of the coronavirus crisis and economic recession.

In other news, Tencent shares sank over 5% on Monday. After a huge rally the day before, it was pushed its valuation near to $1 trillion for the first time.

Price target upgrades from Citi and UBS propelled the stock upward. Investors took profits on Tuesday sending Tencent shares lower. Investors are waiting for Tencent’s Q4 2020 and annual results to be released in March.