Dollar Weakens Amid Risk Appetite on Stimulus


30 December 2020

Andrey Maslov, analyst, FINAM Group

On Wednesday, December 30, the euro strengthens against the US dollar by 0.34%, trading at 1.2288. The DXY dollar index was down 0.24% to 89.71.

The main news affecting the US currency is the adoption of a package of fiscal stimuli. Earlier this week, the House of Representatives approved an increase in the payout from $ 600 to $ 2,000 per person. However, on Tuesday, when the bill was being considered in the Senate, Republican Majority Leader Mitch McConnell blocked the increase in payments, demanding that the bill also include President Donald Trump’s demands on the responsibility of social media for the content of publications and the allocation of funds to verify the facts of electoral fraud. According to the leader of the democratic minority in the Senate Ch. Sumer, such a bill will not pass the House of Representatives and, accordingly, cannot become a law. Thus, the issue of increasing lump sum payments is still “stuck”, however, according to the head of the US Treasury, payments within the framework of the support package signed by Trump for almost $ 900 billion will begin to flow to the bank accounts of Americans in the very near future.

Since President Donald Trump signed the 2021 budget and $ 2.3 trillion fiscal stimulus package on Sunday, the U.S. dollar has weakened significantly against nearly all global currencies as the prospect of more U.S. stimulus has reduced demand for protective assets.

The last-minute standoff has cast doubt on some details of the US aid package, but many analysts say the US government will be forced to stimulate the economy in one way or another, as the country continues to see large numbers of coronavirus infections that threaten economic recovery.

While the size of the preferential payments has not yet been determined, many analysts argue that the dollar is likely to continue to decline next year, as Joe Biden is expected to push for more economic support measures.

Another factor behind the dollar’s decline is investor expectations that the Fed will keep interest rates low for an extremely long period of time.

Also, a new strain of coronavirus, previously discovered in the south of England, and now in a number of countries around the world, continues to influence world markets. So the governor of Colorado, Jared Polis, said that the same new strain of coronavirus B.1.1.7 was first identified in his state. This came after Joe Biden’s speech in Washington, where he said that “efforts to distribute and use the vaccine are not progressing as they should” and “at the current rate, it will take years, not months, to vaccinate the American people.”

Today it is also worth paying attention to today’s vote of the British Parliament on a bill on an agreement on future relations with the European Union, as Prime Minister Boris Johnson said a day earlier. Recall that earlier the UK and the European Union reached an agreement on a number of points as part of a post-Brexit trade deal. However, some details of the relationship have not yet been settled.

Yesterday, the US House Price Index from S&P and CaseShiller for October was released, showing a result of 1.3% (m / m), which exceeded the forecast of 0.8% (m / m) and is equal to the previous period. On an annualized basis, the figure was 7.9% (YoY) – this is the highest growth rate since 2014 – above the consensus forecast of 6.9%, in September the growth was 6.6% (YoY).

Today it is worth paying attention to the data published in the USA for November on the balance of foreign trade in goods, the volume of inventories in wholesale warehouses, the index of unfinished transactions on home sales, as well as the publication of the business activity index in Chicago for December, stocks of crude oil, gasoline and distillates from EIA and API crude oil reserves change.

The EUR / USD rate continues to rise and is traded at the level of 1.2278. Stochastic lines are approaching the overbought zone, which indicates limited upside potential for the instrument in the short term. However, if quotes hold above 1.2200 at the beginning of 2021, the next growth target will be the level of 1.2500.

This information is not investment advice.

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