- Stocks markets extended gains on fiscal stimulus optimism and strong earnings releases.
- The divergent outlooks of the ECB and Federal Reserve could hamper the EUR/USD.
- US Dollar Index (DXY) set to extend gains
Stock markets extended gains in the Asian session. on the prospect of additional US fiscal stimulus and upbeat earnings reports. Australia’s ASX 200 rallied 0.92% while Japan’s Nikkei 225 advanced 1% higher.
In FX markets, the risk-sensitive AUD, NZD and NOK outperformed, while the safe haven JPY and CHF underperformed. Looking ahead, Euro -area inflation figures for January and US ISM non-manufacturing data will be in focus.
Divergent Monetary Policy Outlooks Could Drag on EUR/USD
The divergence in monetary policy outlook between the European Central Bank and the Federal Reserve could pull on the EUR/ USD as several ECB Governing Council members hint towards supporting further interest rates cuts.
Meanwhile, multiple Federal Reserve members have suggested that the central bank could taper its Quantitative Easing (QE) program later this year.
Although Chairman Jerome Powell was clear that the focus on exit is premature”. That said, the Fed looks unlikely to loosen monetary policy further for now.
With the ECB considering further cuts to spark inflation investors could continue to favour the Greenback over the Euro in the near term.
Eurozone inflation data will be closely eyed.to determine the ECB’s next steps. Weak inflation could boost the central bank to act sooner adding pressure to the Euro.