Dollar Under Selling Pressure
The US Dollar has come under heavy selling pressure this week. The risk on tone sweeping markets continues to detract safe haven inflows away from the greenback with equities and commodities markets surging higher in response to the latest COVID vaccine news. With a handful of different vaccines having now been submitted for approval, and with the UK government having already approved Pfizer’s vaccine, risk markets have been shocked back into life. However, the US Dollar has also come under pressure this week from the latest political news around a second fiscal stimulus package.
Reuters has been reporting that president Trump has said he will sign off on the Senate republican COVID relief package put forward by Senate Majority leader Mitch McConnell. Treasury Secretary Steve Mnuchin has said that trump is willing to support Mitch McConell’s package following the Senate Majority Leader voting down a $908 billion bipartisan deal on Tuesday.
McConnell is proposing a much smaller $332.7 billion package in loans and grants for small businesses. However, this is still well below the $2.4 trillion figure that incoming president Joe Biden has given his backing for. With democrats having stated their opposition to the smaller package on offer, it seems unlikely that the deal will be agreed. Senate Democratic leader Chuck Schumer touched on this, saying: “The obvious fact of the matter is the biggest impediment to getting an agreement is the Republican leader refusing to negotiate in a bipartisan way.”
Fed Calls For Further Support
However, there is a pressing need for further fiscal stimulus. Just this week we heard the chairman of the Federal Reserve Joe Biden reiterating his call for further stimulus. Powell acknowledged that while the recent vaccine news is certainly encouraging, the economy is currently in a very fragile state and until such time as the vaccines are in place and working effectively on a large scale, the economy needs continued support. Powell stopped short of tipping the Feds hand ahead of its upcoming December 17th meeting. However, the market is widely expecting that the Fed will announce further action, especially in light of the US government recently ordering the end to a portion of the Fed’s current programs by year end.
The US Dollar index continues to grind lower within the large falling wedge pattern which has framed price action over the year so far. Price has recently dropped through the prior 2020 lows of 91.74 and is no on course to test the 90.72 structural support, where we also have the supporting trend line of the falling wedge pattern.
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