By the close of trade on Tuesday, the South African rand strengthened against the US dollar.

  • Investors continued to weigh the benefits of fiscal stimulus and coronavirus vaccine rollouts over concerns about second and third wave coronavirus infections.  Biden knows only too well that the bigger you are, the harder you fall and this is what is behind his $1.9 trillion dollar rescue package for the economy and for tackling COVID-19 head on. He literally took hours to get his act together.
  • In the US, consumer confidence rose in January, despite lingering concerns about the COVID-19 pandemic leading to a further deterioration in US households’ perceptions of the labour market.
  • Federal Reserve Chairman Jerome Powell faces a tough question when he approaches the podium on Wednesday: is it a better strategy to provide more or less communication on the Fed’s asset purchase program? On interest rate policy, the Fed is expected to hold rates at near-zero as the economic focus shifts to the vaccine rollout and President Joe Biden’s efforts on further stimulus. “We expect little news from the FOMC meeting, with the FOMC hesitant to show much pessimism about current growth or too much optimism about the impacts of vaccines or additional fiscal policy
  • On global front, the International Monetary Fund has become more upbeat about the global economy, as coronavirus vaccinations are administered across the world.
  • The yield on benchmark government bonds mostly rose yesterday. The yield on 2026 bond rose to 6.68%. Further, the yield on 2023 bond advanced to 4.56% while that for the longer-dated 2030 issue fell to 8.77%.

In early trading on Wednesday, the US dollar is trading higher against the South African rand at R15.0822, while the euro is trading higher at R18.3366.  The British pound has marginally gained against the South African rand to trade at R20.7129.

By the close of trade on Tuesday, the euro declined against most of the major currencies.

  • European Central Bank policy makers have agreed to look deeper into the euro’s appreciation against the dollar since the start of the pandemic, focusing on whether it’s driven by differences in stimulus policies compared with the U.S., according to officials familiar with the matter. The review could shape how the ECB responds to an issue that has alarmed policy makers, who worry that the euro’s strength over the past year depresses inflation that is already below zero. That could force the central bank to provide more monetary stimulus, even as it acknowledges mounting risks to financial stability.
  • In the UK, unemployment rate rose in November to its highest level in four years, on account of rising coronavirus infections.  Retail prices have plunged further this month as post-Christmas sales and shop closures caused retailers to discount stock heavily, according to new figures. The BRC-Nielsen Shop Price Index for January has revealed that prices slid by 2.2%, as deflation accelerated from 1.8% in December. The slump was driven by a sharp decline in the price of non-food items during the month. Non-food prices slid by 3.6% in January, compared with a 3.2% fall in the previous month.
  • Bank of Japan Governor Haruhiko Kuroda said Tuesday the state of Japan’s fiscal health is “very serious” but denied the central bank is financing the government’s budget with its massive purchases of government bonds. “I personally think Japan’s fiscal situation is very serious,” Kuroda, who has rarely commented on fiscal conditions, said during a parliamentary committee session, at a time when the government is relying on massive bond issuances to finance stimulus measures and support the pandemic-hit economy. In fiscal 2021 starting in April, the government plans to issue 236.01 trillion yen ($2.3 trillion).

In early trade on Wednesday, the euro has marginally slipped against the US dollar to trade at $1.2137, while it has marginally gained against the British pound to trade at GBP0.8822.