20.10.202015:32 Forex Analysis & Reviews: Mysterious stimulus package. How USD may react?

The current weakness of the US dollar could be explained by uncertainties around the new large stimulus package. The main question is when it will be approved, before or after the upcoming elections.

Some analysts from Wall Street suppose that the US congressmen will hardly come to an agreement on the package. They are likely to cut the sum significantly

At the same time, experts at Goldman Sachs suppose that there could be a small stimulus package for small businesses. There are no reasons to provide significant support by the end of the year.

US fiscal policy for next year should be determined by the results of the US Senate elections regardless of the results of presidential elections. The Trump administration is offering $ 1.8 trillion whereas Nancy Pelosi is offering $ 2.2 trillion. These two initiatives are much closer to each other than the proposal of the leaders of the Republican majority in the Senate ($500 billion). If the Senate remains under Republican control next year, Congress is likely to agree on a package of measures close to the Republicans.

Representatives of AGF Investments, which manages $35 billion, are also not sure that the parties will reach a political consensus. They believe that this week the leader of the Republican majority in the Senate, Mitch McConnell, can hold a vote on the allocation of $500 billion. In this case, Democrats will not sign an agreement.

There are too many disagreements and only few opportunities for an agreement, according to Height Capital Markets. As soon as the Treasury Secretary concedes to Nancy Pelosi, Republican senators will immediately seek to toughen their position. And vice versa, once there is a discussion of a smaller amount of incentives, Pelosi gets too emotional.

Pelosi set a deadline

Yesterday, speaker of the House of Representatives Nancy Pelosi said that Tuesday would be a deadline for an agreement. On Tuesday, Steven Mnuchin and Nancy Pelosi, who periodically negotiate a new bailout plan for the US economy, should continue the debate.

Meanwhile, on Monday, Republican Senator John Thune expressed doubt that there would be enough Republican votes to pass a bill providing $1.8 trillion in aid. Instead, Republicans are planning to come out with a new proposal. The package will be aimed at funding the salary protection program, which was launched earlier with bipartisan support to provide loans to small businesses. However, Democrats had previously said that they would not approve such ideas because they considered such measures insufficient.

Meanwhile, the negative background continues to form for the US dollar. The Fed is increasing purchases of securities, capping the rise in the yield of treasuries. The regulator bought $29.97 billion worth of mortgage and Treasury securities over the past week, compared with $ 11.16 billion in the previous week. Thus, we can state that the growth rate has accelerated by almost three times. Of course, this does not play on the side of the US currency. In addition, falling interest rates indicate an excess of dollars in the banking system. This factor will also contribute to the depreciation of the greenback.

Yesterday, the long-term trend of the US dollar index reversed. Today, the US currency continued to trade in the negative territory. If the currency breaks the 93.35 level, the medium-term downward trend will confidently recover. This will allow sellers to bet even more enthusiastically on the fall of the US currency.