fxstreet.com 08 Feb, 2021 10:45 am

Reflation trade is back

Reflation trade is back
A much softer than expected US January jobs report didn’t prevent US equities from closing higher at the end of last week as the reflation trade kicke

9 trillion fiscal stimulus plan will be passed, albeit via a process of reconciliation, which allows Democrats to circumvent the need to gain the support of at least 10 republicans.The impact of expectations of increased fiscal stimulus is particularly apparent in the US rates market, with US Treasuries selling off and bear steepening of the curve.As such, the weak jobs data added more support to Biden's fiscal stimulus proposals.A much softer than expected US January jobs report didn’t prevent US equities from closing higher at the end of last week as the reflation trade kicked back in.

The return of the reflation trade, rally in risk assets and decline in cross-asset volatility bodes well for emerging markets (EM) assets.Although higher US Treasury yields failed to give support to the US dollar (USD) there is still scope for a short covering rally, which could still help give the USD relief.

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