The dollar continues to trade just above strong support as it struggles for direction amid low volatility generally in FX. President Biden is set to release a fully costed budget plan today including $6 trillion in federal spending for the fiscal year 2022 to be raised to $8.2 trillion by 2031. This will leave rather large holes in the annual budget in excess of $1.3 trillion over the next decade.

Of course, what is promised by the new administration and what gets delivered are two different things with the previous Democrat hiding in the mid-term elections after Obama became President firmly on Biden’s radar. It was noticeable that news on the size of the spending triggered a rally in industrial metals.

Vix takes another leg lower

Low volatility is hitting equity markets too with the Vix now below its long-term average. The MSCI World stock index is closing in on its all-time high from early May with higher yields and small caps especially outperforming. Those stocks tied to the reopening of the US economy did well yesterday meaning tech and the Nasdaq underperformed.

GBP rises to the top of the range

Cable outperformed yesterday with a 0.6% gain after outgoing Bank of England policymaker Vlieghe hinted at a rate hike early next year. While he did layout different scenarios for the UK economy including talking about negative rates, the market responded to the hawkish comments most as Vlieghe is typically more dovish so this may give us a sense of where the more moderate MPC member’s outlook lies.

GBP/USD resistance sits firmly around 1.42 with prices having traded in a 1.41-1.42 range over the last week or so. Consolidation near the highs, a “pause for breath” is normally constructive for bulls before an upside breakout but we do have the inflation data out of the US this afternoon to contend with. That said, base effects in the PCE spending and deflator data are well known.

On the GBP side, question marks around the grand and full reopening of the UK (economy) on June 21 may hold the final key with much speculation that it is still in the balance. EUR/GBP moved lower and is now at the bottom of the recent range with last support at the mid-May low at 0.8560 before the cycle lows below 0.85.

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