The topic of new stimulus measures in the United States has wholly captured investors’ minds, especially those in the US market. Investors are confident that incentives will be accepted.
At the end of the last week, negotiations on the new, so-called coronavirus stimulus between Speaker of the US House Nancy Pelosi and Treasury Secretary Steven Mnuchin reached an impasse. However, this does not seem to scare investors since they believe that any presidential race winner will be forced to adopt the incentives.
Previously, markets reacted violently in anticipation of the possibility of new stimulus measures. The Fed leader Jerome Powell was repeatedly saying that the country’s economy needs this stimulus. Considering this, investors responded by either increasing positive sentiments, which put pressure on the US currency, or, on the contrary, decreasing them with a simultaneous increase in demand for the dollar. The last week’s events clearly showed that market participants have already decided what will happen in the post-election period and believe that support measures will be taken anyway.
Last week another round of the negotiations between a Democrat Nancy Pelosi and Steven Mnuchin, the de facto representative of Donald Trump and the Republican Party, reached an impasse. That didn’t surprise anyone because it’s clear that no one wants to “lose face” in front of the political opponent on the eve of the election. Given these strong sentiments and the generally positive expectations from US companies’ corporate reporting for the third quarter, investors show sustained optimism, negatively affecting the US currency rate.
Let me say that the expansion of measures to support the economy increases the dollar supply in the financial system, leading to a kind of excess, which is a decisive factor in the depreciation against other currencies, which supply in economic systems remains significantly lower. It pushes other currencies rates up against the dollar, despite the country’s stimulus measures, which, of course, cannot be compared with the American ones. Based on this, I believe that the dollar will remain under pressure and continue to decline during this week smoothly.
What to expect soon
I believe that such sentiments on the markets will persist until early November when the US election is held. The dollar will remain under pressure, but its decline will be smooth because, despite the strong expectations of new stimulus measures, investors are likely to be cautious.