Forex Today: Bond demand downs the dollar, Fed speeches, inflation data, and coronavirus news eyed

Here is what you need to know on Wednesday, January 13:

The US dollar is on the back foot after a bond auction drew high demand, consequently pushing yields lower. Markets seem content with the Fed’s reluctance to taper its Quantitative Easing scheme. US inflation and a speech by the ECB’s Lagarde stand out on Wednesday. Coronavirus and vaccine headlines are eyed. 

US ten-year Treasury yields are hovering around 1.12%, down from a peak above 1.18%. The decline – which carried the greenback lower – came after investors showed robust demand for new ten-year bonds in Tuesday’s auction. A 30-year bond offering is eyed on Wednesday as the dollar remains sensitive to returns.

US Politics: The House of Representatives is set to impeach President Donald Trump for incitement of an insurrection as early as Wednesday. Vice-President Mike Pence rejected a call to oust Trump using the 25th Amendment. President-elect Joe Biden is set to take office in one week and investors are focused on his economic plans rather than the political drama which is grabbing the headlines. 

US Consumer Price Index figures are set to show a pickup in inflation in December, also feeding into the Federal Reserve’s calculations. 

See US CPI December Preview: Markets take the Fed’s cue and look away    

The Federal Reserve’s Richard Clarida and Lael Brainard are slated to speak late in the day, and any comments about the bond-buying scheme will be closely watched. Both are permanent voters on the Fed’s board.

German officials warned that the current lockdown will probably run beyond the current expiry date of February 1 amid rising infections. Italy’s government is on the verge of collapse after former Prime Minister Matteo Renzi threatened to leave the coalition amid disagreements over budgets.

EUR/USD is holding onto gains above 1.2215 despite these developments. Christine Lagarde, President of the European Central Bank, speaks later in the day. 

Brexit: The EU and the UK are set to return to the negotiating table to discuss topics left untouched in the trade deal, most important financial services. 

Britain’s vaccination campaign ramp-up is bearing fruit, with some 4% of the population receiving at least one jab. UK hospitals are under growing strain, including increased use of ventilators.

GBP/USD jumped on Tuesday after Bank of England Governor Andrew Bailey downplayed setting negative interest rates by calling them “controversial.” 

The US vaccinated less than 3% of its population against COVID-19 while European countries’ rates are hovering around 1%. An initial study in Israel, the world leader with 22.2%, showed that the Pfizer/BioNTech immunization reduces contagion, not only illness.

Bitcoin has resumed its decline, trading at around $34,000 and failing to recapture the highs. Ethereum and XRP are also below their recent tops. 

More Extreme emotions are dollar-positive, where next from here?