U.S. Dollar Better as Confidence Grows in the U.S.
MAY 28, 2021
The U.S. Dollar rallied a bit overnight as the focus is on a proposal by President Joe Biden to spend $6.0 trillion in the next fiscal year and increase to $8.2 trillion by 2031.
Although the figure is likely going to come down significantly, it is symbolic for the administration to show such willingness to basically try rebuilding the country. This combined with a Federal Reserve non-intervention stance is fueling domestic markets and ultimately benefitting the dollar.
Additionally, a simple assessment of the COVID situation globally going into June leaves a clear picture that the U.S. has done a stellar job getting half of its population inoculated while the rest of the globe struggles with vaccination pace, resources, as well as a return to spikes in flare-ups particularly in Japan as well as Taiwan and the awful deadliness in India. While there is a global recovery narrative in markets as well, the USD has established itself as a safe-haven and ultimate asset that represents a region handling the pandemic much better than most of the globe.
Personal Income and Spending figures for April this morning came in slightly better than expected as income contracted less than thought. Personal Consumption Expenditures Deflator for the month increased as much as expected, thus giving the Fed evidence their inflationary expectations are in line with reality. We could close the month with the dollar weaker, according to the Bloomberg Dollar Spot Index, by 1.0% or less if the buck ends it all with a rally.
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The Euro is facing downward pressure for the first time in a few weeks as the European Central Bank may act with more QE and help for markets down the line. Per ECB member Francois Villeroy de Galhau stated that there is absolutely no need for the ECB to think about tapering their expanded QE program and more discussions for ideas should come beyond June’s meeting. More importantly, in reference to the negative interest rate in the form of Deposit Rate (-0.5), Villeroy said this does not need to be a floor, thus indicating there is comfort with maintaining a very low-yield environment. Naturally, this may mean the ECB is satisfied with any depreciation that may come with their initiatives and attitudes.
The Canadian Dollar has improved by 1.4% thus far in May, benefitting from a better situation COVID-wise in North America, a faster pace of vaccinations, and an economy likely to grow at a much faster pace with re-openings taking place across all provinces. Furthermore, the Bank of Canada feels confident that the economy does not need that much help or any further help from monetary policy, thus making it seem likely the BOC could tighten before even the Fed or any other major central bank. We shall see a deluge of economic indicators for Canada next week and we shall see if oil and commodity prices will also affect our neighbor.