The US dollar has lost some ground at the start of this week which has helped to lift EUR/USD back towards the 1.1800-level and cable briefly back above 1.3000 on Monday as it is still holding out hope for pre-election fiscal stimulus. However, economists at MUFG Bank do not expect the bill to be passed before the US elections on November 3 and see the USD supported until then.
Key quotes
“The partial reversal of last week’s US dollar gains has been driven in part by renewed optimism over the prospect of US fiscal stimulus. According to reports, House speaker Nancy Pelosi and Treasury Secretary Seven Mnuchin have ‘continued to narrow their differences’ on a pre-election COVID-19 relief package. President Trump has reportedly stated as well that he is ready to match the $2.2 trillion spending level demanded by Democrats. Nancy Pelosi has emphasized though that time is running out to reach a deal, and hopes to have clarity on whether they will be able to pass a stimulus bill before the election by the end of today.”
“Pelosi has warned though that there are still significant areas of disagreement including the scale of assistance to state and local authorities, tax credits for lower income families, liability protections, and the repeal of a tax credit for past business tax losses. However, even if a last minute deal is agreed it remains highly uncertain if it will be able to secure enough support to pass through Congress.”
“There have been few signs yet that the Senate Republicans will be willing to back a larger stimulus bill. In these circumstances, we remain sceptical that a fiscal stimulus bill will be passed before the election. But remain more hopeful that a significant fiscal stimulus bill will be passed after the election especially if there is Blue Wave. It could provide the next bullish catalyst for risk assets and high beta currencies. Until then market participants are likely to remain more cautious ahead of the election supporting the US dollar.”
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