Fiscal hopes drive the markets (Daily analysis 25.01.2021)

Risk assets and currencies begin the new week on the front foot with Bernie Sanders, the Senate Budget Committee's incoming chairman, urging a quick passage of a new fiscal package. The US dollar trades softer, and equity markets advance. The Federal Reserve meeting on Wednesday is the key event of the week.

The EUR/USD pair continues to hover close to the 1.22 handle, and the GBP/USD pares losses incurred on Friday. The most risky G-10 currencies lead the pack with the USD/NOK declining as much as 0.5 pct. The emerging markets space lures investors as well the Russian ruble and the Turkish lira gain on Monday around 0.7 pct while the Polish zloty remains sidelined and underperforms even the CEE3 peers: the Czech koruna and the Hungarian forint.

This week's Fed meeting is unlikely to bring any policy tweaks. We expect that Jerome Powell will do utmost to prevent QE tapering expectations from resurfacing and as a consequence, the US dollar should not regain traction. On Monday, investors will focus on Ifo reading. Italian politics might take centre stage as Prime Minister Conte continues his struggle to remain in power, yet for now, markets remain unfazed by the prospect of snap elections.