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Commodity Currencies Up, USD Down, Reflation Trade is on

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Note  The table above is updated before publication with the latest consensus forecasts. However, the text charts are prepared ahead of time. Therefore there can be discrepancies between the forecasts given in the table above and in the text charts. 

Rates as of 0500 GMT

Market Recap

The reflation trade went full blast yesterday as the Democrats started crafting legislation on the fiscal package that they intend to pass with or without Republican support and the slowing virus count in the US spread some optimism. Even Italy cooperated as Mario Draghi won the backing of the main Italian political parties to form a new government.

Congressional Democrats in the US yesterday released the first draft text for key pieces of legislation for the Biden Administrations Covid19 relief bill. Theyll start committee votes on elements of it later today. They will use a process that enables them to pass it with a simple majority and therefore they wont need to water it down to meet the objections of the opposition Republicans. That means more stimulus is likely.

Commodity prices continued to rise. Oil hit the highest its been in a year, with Brent breaking through 60bbl for the first time since January of last year.

Higher oil prices, higher breakeven inflation rates, and the Congressional Budget Officess estimate for the January budget deficit of 165bn vs market estimate of 150bn pushed the US Treasury 30year yield briefly over 2 for the first time in a year or so,…

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