“The US dollar as the world’s currency depends on both domestic affairs in the US and the state of the country’s economy” — Paul Ebeling
The Big A: Right now we can say that the post-VirusCasedemic recovery is taking place with difficulties.
The macro-statistics recently made public are very contradictory.
Fiscal incentives raised inflation and broke the balance in the employment market where there is no growth.
The consumer mood index fell to a three-month low of 82,3, this number turned out to be below even the most pessimistic forecast of Key economists. Inflationary expectations are 4,6% a yr, and 50% of the population waits for inflation to be even more than 5%. Apparently, the era of low prices in the US has ended, and the economy will grow chaotically, even though Biden’s $4.6-T package is coming in whole or in part, count on it.
Given the unpromising macro-statistics, the profitability of Treasury bonds has risen, a sign that risks increased.
Now, much will turn on the Fed’s actions, it will have to decide to raise the Key rate in the fight against inflation and simultaneously hurting the economy that has not fully recovered yet.
In any case, it will take a couple of months to observe inflation numbers and employment to scrap the policy of easy money.
The Fed is carefully tracking the PCE (personal consumption expenditures) price index. It is a statistical indicator for consumption in GDP collected by the US Bureau of Economic Analysis. It consists of real and prescribed expenditures of households and includes data on long and short-lived commodities and services.
Fact: it is an indicator of commodities and services designed for regular people and some other individual consumers.
If the PCE price index exceeds 2,8% in the next 3 months, the Fed will likely raise the Key funds rate rate. In March, this indicator was equal to 1,8%.
Meanwhile, the Eurozone looks much stronger, therefore there is a gap between the single currency and the Buck.
Accelerated vaccination inspires hope for a faster recovery of EU economies that have already upgraded GDP growth outlooks from 3,8% to 4,3%.
Germany is waiting for the introduction of fiscal incentives on a scale comparable to the US, which will additionally reinforce the integration of the Eurozone.
The recovery of the upward trend for the EUR and USD will be gradual. And if we see the opposition is broken by 1,211, we will see long positions created in the FX market.
The US economy is a well-managed machine producing plenty of goods and services, and it is naïve to expect it to collapse all of a sudden, but it is coming we believe.
Have a healthy day, Keep the Faith!