The focus remains on the discussion of the incentive package. The adoption of the $1.9 trillion government spending bill could boost inflation. This is not just talk, some experts expressed their concerns, particularly former Treasury Secretary Larry Summers.
This topic worries the debt market investors, who have shown their reaction. As a result, the rate on 30-year US government bonds rose above 2% for the first time in a year. Rising rates are likely to put pressure on the stock market. On Tuesday, world markets showed mixed dynamics, while futures on major US stock indexes at the beginning of the American session slightly decreased.
The rally in the market could stall as investors took into account many positive factors, including the improving situation with the pandemic in the United States. However, the risk of another jump in the incidence of coronavirus remains, so the authorities are in no hurry to lift quarantine restrictions.
On Wednesday, market players will focus on a new report on US consumer prices. Inflation is expected to rise.
Fears about inflation are not groundless. Before the crisis, US residents were able to save about 7.5% of their income, while at the height of the pandemic - a third of their income. It is hardly necessary to explain where this money will go after the crisis. America has spent more than $2.4 trillion on the pandemic, and this figure is not yet final as spending continues to grow. Demand is increasing, money supply is increasing, it is not surprising that prices will rise.
US President Joe Biden stressed that the country will have full employment and more money, but there is a downside everywhere. Even Janet Yellen realizes that over-stimulus can lead to uncontrolled price increases.
Inflation will increase, there is no doubt about that. However, there is no reason for panic yet, since a slight increase in the indicator over the target is not something terrible. Basically, it makes people spend money.
The dollar weakened on Tuesday against world reserve currencies. This, in particular, was facilitated by the impeachment trial of former President Donald Trump.
The US dollar continued its downward trend on Wednesday, in anticipation of the publication of inflation in the US. According to preliminary forecasts, consumer prices in the country for January rose by 1.5% in annual terms. This is the highest level since last March. In December, inflation stood at 1.4%.
This portion of statistics may affect investor sentiment. If consumer prices rise above the forecast, analysts do not exclude a noticeable reaction of the markets, as this will confirm high inflationary expectations.
Traders are also awaiting the speech of Fed Chairman Jerome Powell, who may shed light on further monetary policy.
The dollar index dropped to 90.3 on Wednesday. If the sellers of the dollar managed to push the quotes below 90.00, the markets will receive a signal for a new wave of decline in the US currency.
The downward pressure on the dollar will come from the approval of a new package of fiscal stimulus. More liquidity will be poured into the US economy, which means dollar sales will become more aggressive.