US Dollar and Yen Up, British Pound Down as New Virus Strain Hits London

US DOLLAR, BRITISH POUND, JAPANESE YEN, CORONAVIRUS, STIMULUS - TALKING POINTS:

• US Dollar and Yen up, Pound down as new coronavirus strain hits London
• US congressional leaders agree on a $900-billion fiscal stimulus proposal
• Sentiment trends set to drive financial markets as the trading week begins

The US Dollar gapped sharply higher and the similarly anti-risk Japanese Yen advanced while the British Pound sank at the weekly trading open. The moves follow reports that a new strain of the coronavirus has swept London, pushing authorities to institute a full lockdown in the city and souring risk appetite across the global financial markets. The absence of progress on a Brexit deal probably didn’t help either.

Interestingly, news of agreement on a US fiscal stimulus package did not offset the broadly downbeat mood, although it is hard to say if the selloff might have been more aggressive without the accord. Republican and Democratic party leaders in the House and Senate said congressional negotiators have reached agreement on a US$900 billion spending plan.

The package includes a broad range of initiatives, such as direct payments of $600 for most Americans and $300/week in enhanced jobless benefits. $248 billion is set aside for forgivable loans to small businesses. Money is also earmarked for transportation (such as airlines, which have been hit especially hard by the pandemic), vaccine distribution and education.

Chart created with TradingView

Looking ahead, a barebones economic data docket is likely to give way to broader sentiment trends as the main driver of price action. Australian shares are tracking modestly lower in early trade and futures tracking Japan’s benchmark Nikkei 225 index are down ahead of the cash open, warning that a risk-off mood is likely to remain in play.

Having said that, contracts tracking bellwether US averages – notably, the broad S&P 500 index – are tracking relatively little-changed. This suggests that the level of conviction in the anti-risk move is relatively modest, opening the door for a reversal if the right set of catalysts presents itself. That may see the Greenback as well as the Yen struggle to build lasting upside follow-through.

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--- Written by Ilya Spivak, Head APAC Strategist for DailyFX.com

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