$3 Trillion is not Enough; Reasons for USD sell-off

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In recent months, the Coronavirus pandemic, and the U.S – China trade tensions have hit the United States extremely hard and this has resulted in a 5% contraction in the first quarter of 2020. As per the International Monetary Fund (IMF) expected the official data showed on Thursday that the US economy suffered its worst period ever in Q2, with GDP falling a historic 32.9%, slowing down from -5% in the previous period. Meanwhile, the US has already spent $3 trillion propping up the economy since the pandemic struck in March and which helped the economic recovery from mid-April to June was faster than many economists had expected.

“The pandemic represents a rare but narrow window of opportunity to reflect, reimagine and reset out the world” – Klaus Schwab, founder and executive chairman, World Economic Forum.

Reasons for USD sell-off and What next?

Recent dollar weakening suggests it is the market taking a view that the US economy could be about to come under further pressure. The greenback still struggling to find an upside momentum as concerns over the mounting number of infections, uncertainty around the next round of stimulus package and escalating tensions between the US and China.

Moving ahead the investors and traders eagerly waiting for the next round of stimulus, the US is preparing further support for the economy, including allocating $1,200 stimulus payments to Americans. On the last FOMC meeting, The Fed Chairman Powell hinted that the economy would need additional support measures to cope with the outbreak of the economic crisis. “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check,” Powell said.

US Dollar Technical Outlook

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The US dollar index, a measure of the USD’s value against a weighted basket of foreign currencies. The index has broken down below 93.50 and at the time writing, the pair trading above 93 after found buyers near the key support at 92.50. This level on Dollar Index is very crucial and would be significant if it were to be breached. Any break below 92.50 the next support at the 92/91.80 level and on the upper side the Immediate resistance can be found at 93.50 and then 94.


When will the US economy recover?

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Yet since then, the US has suffered a surge in new coronavirus cases, the country is still struggling to contain infection rates and deaths from COVID-19. According to the latest figures published by Johns Hopkins University, In the US, there have been 4,601,526 confirmed cases and 154,002 deaths. On the other hand, the tensions between US-China continue to escalate following the closure of China’s Houston, Texas consulate. In retaliation, China has ordered the U.S. consulate in Chengdu to cease operations.

So, until a vaccine or effective treatment for Covid-19 is available the recovery of the world’s largest economy will not really get underway till the mid of 2021. However, the use of the potential vaccine can only be expected in early 2021. On last week, American biotechnology company Moderna's COVID-19 vaccine candidate moves into late-stage trial after securing an additional $472 million from the U.S. government to support.



"The economic costs of the crisis are being borne disproportionately by the poor and vulnerable, bringing into stark relief deep inequities that have long afflicted the US," the IMF said.


Read more - https://gulfbrokers.com/en/3-trillion-is-not-enough
 
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