US dollar pushed lower by roaring risk appetite (Daily analysis 9.02.2021)

The worse, the better. Disturbing data from the US labour market fuelled the belief that Joe Biden's administration will move quickly with fiscal relief. The optimism is spreading across the financial markets, which means stronger emerging market currencies and a weaker dollar.

New all-time highs on Wall Street and strong rallies in the oil price, which exceeds 61 USD on the London Stock Exchange, clearly illustrate the level of risk appetite. The US dollar is weak and has almost completely given up last week's over 1% appreciation against the main currencies. The EUR/USD pair is going up towards 1.21 mark. The pound sterling remains very strong on the global markets. The vaccination program's efficient course drives its rally – every twentieth citizen will be vaccinated within days. The perception of the currency is positively influenced by the Bank of England abandoning the idea of reaching for negative interest rates.

Improving epidemic situation elevates oil and the krone

The current optimistic market sentiment results not only from the growing conviction that after the weak US labour market data (described in Monday's analysis), Joe Biden's administration will speed up work on a new fiscal package that could amount to 8-9% of the US GDP. The pursuit of yield in risky markets is also a derivative of the US's improving epidemic situation. The number of new Covid-19 cases has fallen to levels last seen in November. Moreover, it is half of what it was just a month ago. Suppose we join this with the fact that more than 12% of US citizens have already been vaccinated. In that case, it clearly explains why oil is growing strongly while waiting for the lifting of restrictions and mobility limitations. At the same time, the Norwegian krone, which is among the currencies most strongly linked to the crude market, is leading the stakes of the main currencies in the last few market hours. The outlook for the Scandinavian currencies is positive – they should remain strong, but the room for continued growth in their value has mostly run out.