USDX Weak, Fails to Break above $91 Even with Investor Confidence
Despite investor confidence, the USD continues to weaken against a basket of currencies. As of Jan 22, the USDX is still struggling below 91, tracking lower versus the Euro and GBP. Analysts now say that with Democrats controlling both Houses and the White House, and Yellen soon to be confirmed as Secretary of Treasury, odds of the USD strengthening remain slim. Joe Biden, Democrats, and Yellen all support the idea of more financial support to the economy for recovery.
Lawmakersagree with Yellenthat the United States, in a reflation, needs to inject more capital into the economy to arrest the effects of a long-lasting recession. This means more relief packages, moves that continue to heap pressure on the USD. A weaker USD means a cheaper greenback, ideal for business. With more money available, citizens' purchasing power will improve. However, this will be a balancing act in the medium term since inflation might rise above the two percent mark, enough to trigger interest rate spikes. Together with mostly welfare decisions like increasing minimum wages to $15, extending paid leave period, and increasing and extending unemployment benefits, these will combine to weigh down the greenback to new multi-year lows.
Impact on the USD:
Neutral to bearish. The USD is suppressed, rewinding recent gains. Technically, the dollar index risks breaking below 90 to new multi-year lows.
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