US bond yields continue rising and the dollar is finally responding with a rise. Stock markets are mostly shrugging off the “reflation trade” yet gold is on the back foot. Bitcoin holds above $50,000 and oil continues higher amid power cuts in Texas. US Retail Sales and the Federal Reserve’s meeting minutes stand out.
US stimulus: President Joe Biden is on the road, trying to promote his proposed $1.9 trillion coronavirus relief package to the public while Democrats continue advancing the bill in Congress. The prospects of massive government spending and potential inflation have pushed investors away from bonds and the resulting higher yields are supporting the dollar.
EUR/USD has dipped under 1.21 despite optimism ahead of Mario Draghi’s first speech as Italy’s Prime Minister. GBP/USD has dropped under 1.39, with sterling unable to benefit from Britain’s successful vaccination campaign.
Higher returns on US debt mean that yieldless gold is on the back foot with XAU/USD slipped under $1,800. On the other hand, oil prices remain elevated as a storm in Texas has cut US crude output by a third and as residents suffer rolling blackouts.
Stock markets have slowed their gains but have yet to turn south. Some focus on US stimulus as a growth engine and higher yields only a side effect. US retail sales figures for January are set to show an increase in spending after two months of declines.
The Federal Reserve’s meeting minutes are due out late in the day and they will likely show that most members are dismissing any inflationary pressures as transitory or even a blessed phenomenon.
Bitcoin has been extending its gains after peeking above $50,000 on Tuesday. Other cryptocurrencies are more volatile. Dogecoin, touted by Elong Musk, is on the back foot.
Speeches by Fed officials and Canadian Consumer Price Index statistics are also scheduled for Wednesday.