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US Consumer Sentiment Dips in January, but Relief Package Bolsters Greenback

Jay Brahach January 15, 2021

The University of Michigan’s preliminary Consumer Sentiment Index for January missed expectations by 0.3 percentage points this morning, measuring in at 79.2.

This is a drop of 1.5 points since December, as it appears any consumer optimism gained over the Christmas period has begun to decay.

After this data release, the trade-weighted US dollar index (DXY) increased by 0.13%, but the gain is likely a continuation of earlier strength likely driven by the $1.9 trillion stimulus plan proposed Thursday by the incoming administration of US President-elect Joe Biden.

Despite the turmoil the US has experienced in the last month, including insurrection, impeachment and rising COVID deaths, the fall in consumer sentiment this month is comparatively small.

As has been the case in recent reports, a partisan shift in expectations can begin to explain why this is the case. Supporters of the Biden administration will see a new policy approach as ultimately beneficial to consumers, as greater focus is placed on wealth redistribution.

Elsewhere in the report, the Current Economic Conditions Index saw a drop of 2.6% to 87.7, whilst the Index for Consumer Expectations fell by 1.1% to 73.8.

After the Capitol riot last week, Biden gave an impassioned speech laying out his policy agendas for his first 100 days in office. He laid out three key areas which needed urgent attention. These were a comprehensive vaccine program, a plan to reopen schools and an economic stimulus package. With interest rates so low, Biden argued that economic stimulus was crucial for recovery.

His plan will see $1 trillion for households, with $1,400 going directly to all Americans. There is $415 billion allocated to tackling Covid, whilst $440 billion is proposed for small businesses. The plan is drawing some criticism from Republicans however, with a $15 minimum wage appearing to be a sticking point.

There is still much uncertainty for consumers in the US in the coming months, but this stimulus package could go some way to alleviating the financial burden of COVID-19 for the everyday American. A revision of the University of Michigan’s consumer confidence figures in the final version of the data for January later in the month would not be surprising.

Jay Brahach
Account Executive & Currency Analyst
jbrahach@cambridgefx.com

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