The topic of Donald Trump’s COVID-19 infection is beginning to fade into the background. Many political analysts are starting to claim that this was staged as a part of the pre-election struggle strategy since he began to feel good unusually quickly. Only time will tell whether or not it is true. Meanwhile, investors’ attention on financial markets is still focused on whether new stimulus measures will be adopted in the United States or not.
Yesterday, the House of Representatives’ Speaker, Nancy Pelosi, said that she would not support Donald Trump’s measures to help airlines. It restrained the rally in the US stock market, but investors continue to believe that the measures will be adopted sooner or later. There are several reasons for this.
The first is that the US economy can no longer exist without financial injections, as Jerome Powell, head of the Federal Reserve, repeatedly says. The authorities’ desire to preserve everything and, at the same time, not to lose anything is unrealistic, which leads to a zugzwang. The measures to help the economy after the 2008-2009 crisis did not solve the American economy’s underlying structural problems, only postponed them. Since the beginning of the year, more incentive measures have been taken against the backdrop of the COVID-19 pandemic, but they dried up for this moment. Now the markets are demanding more and more.
The second reason is that the presidential race winner will need to release financial aid to consolidate power. And then he will have to start all over again.
In a situation of cyclical measures to support the economy, which works less and less at each circle, the US currency will find itself in a state of permanent weakness. The only thing that keeps it from a catastrophic fall is the desire of the world’s central banks to weaken the rates of their national currencies and the fact that the dollar is still the world’s reserve currency.
What to expect soon
I believe that the overall picture of the currency markets will not change noticeably over the next week. Expectations of new stimulus measures in the US will remain the main negative factor for the dollar. Still, at the same time, its weakening will be constrained by the uncertainty of the outcome of the presidential elections in the United States.