The US dollar fell across the board on Tuesday morning, retracing some of its recent gains and resuming a downward slide that characterised much of the second half of 2020.

Analysts and investors continue to take the view that an expansionary fiscal policy from the US government is positive for risk currencies and negative for the dollar. President-elect Biden unveiled plans for a mammoth $1.9 trillion stimulus package last week. Eyes will now turn to former Federal Reserve chair and current Treasury Secretary nominee Janet Yellen, who is expected to talk up the need for a large fiscal package later today. According to the Wall Street Journal, she is also set to commit to a market-determined exchange rate policy, a contrast to Donald Trump who continuously voiced his displeasure over a stronger dollar.

Yellen’s speech is scheduled for 15:00pm UK time (16:00 CET) today. This will be the highlight in an otherwise very quiet day of macroeconomic news. Investors may keep tabs on this morning ZEW economic sentiment numbers for Germany and the Euro Area, although these tend not to be major market movers.

Are more gains for the pound on the cards?

Sterling has followed a similar pattern to the euro so far this week, edging off its lowest level in around a week versus the greenback. There has been little major newsflow for the market to digest in the past couple of days. Investors are, however, likely to be encouraged by the tentative signs of a stabilisation in new COVID-19 cases in Britain.

New daily confirmed cases of the virus have fallen back below the 40,000 level for the first time since Boxing Day, despite a continued expansion in the UK’s testing capacity that is now comfortably outstripping just about every other major nation. The UK’s test positive rate has subsequently fallen from around 13% to less than 9%, below the same metric in Germany, Spain and Italy. Moreover, the UK has now administered at least one dose of either the Pfizer or AstraZeneca vaccine to more than 4 million people (6% of the population), with new mass vaccination hubs being opened up in order to further speed up the process.

With plenty of reasons to be positive over the pound, we may start seeing a more sustained uptrend in the currency. This would be particularly so versus the euro should the current production delays of the Pfizer vaccine to Europe drag on longer-than-expected.