span>Thursday/span>21st January 2021 - 09:07 (GMT)
As Joe Biden was sworn in as the 46th President of the United States, many traders are left wondering what sort of reforms are on the horizon for the worlds largest economy. With him, comes the first ever female Treasury Secretary, Janet Yellen, who brings a wealth of experience as former head of the Federal Reserve.
Both President Biden and Secretary Yellen inherit an economy with rising unemployment, contracting industries and a stalling post-pandemic GDP. Similar to the Obama administration in 2009, the markets expect a dovish approach by the democratic party - preferring looser policies such as low interest rates in an attempt to stimulate economic growth. This has led investors to moving funds out of the US dollar and into potentially higher-return assets.
Unlike the Obama administration, Biden and Yellen have both been quoted as aiming to “go big” in an attempt to balance the recent economic turmoil. This approach became clear last week as they announced an historic $1.9 trillion stimulus package, adding to the already gargantuan $4 trillion of stimulus previously agreed by US Congress.
Aptly named the American Recue Plan, it includes $1400 stimulus cheques for millions of struggling citizens, doubling of the federal minimum wage, $350 billion in state and local aid, enhanced unemployment benefits, help for the hungry and $25 billion in rental assistance.
The announcement immediately gave global markets a shot in the arm, with many US exchanges reaching fresh all-time highs and risk appetite flowing back into the currency markets. GBP/USD touched $1.37 for the first time since March 2018 as bets against the greenback over 2021 continue to mount.
Moving forward, the short-term trajectory of USD is likely to be dictated by President Bidens handling of the coronavirus pandemic. As one if his first acts, the newly sworn-in President signed an executive order requiring face masks on federal property and also pledged further funding to help increase the speed of vaccination rollout across the country.
If the President succeeds in reducing infection rates and boosting productivity, there is a good chance the current trend of easing USD strength will continue. Commerzbank recently sighted $1.40 as a target level for GBP/USD and with the current positive economic data out of the UK, this is looking more likely by the day.
