Biden Knocks EUR/USD Down, Powell May Send It Over The Edge

More government money is better for the dollar – at least when it comes to fiscal stimulus. Media reports that President-elect Joe Biden is set to announce a generous stimulus package worth some $2 trillion has boosted markets and the dollar. Investors had speculated that the scope of the relief would hover around $1.3 trillion.

Why is the greenback gaining ground? An increase in government debt triggered a move to stocks from bonds, pushing US Treasury yields higher and making the dollar more attractive. Moreover, with additional support from Uncle Sam, the world’s largest economy could grow at a faster clip, another boost to the underlying currency.

Biden speaks only at 00:15 early on Friday, and reports from Washington could provide additional details about the package. It is set to include direct payments to all Americans, expanded unemployment benefits, and aid to state and local governments.

Will the Federal Reserve buy additional US debt and push the dollar back down? Or will it see rising yields as a sign of upcoming economic strength and even consider tapering its scheme? Several officials at the Fed have been rejecting the option of an early reduction in debt purchases  – but the mere discussion about scaling the program down rather than expanding it has been supporting the dollar.

Jerome Powell, Chairman of the Federal Reserve, has the final word – and he speaks on Thursday, ahead of Biden. The world’s most powerful central banker does not need to address the Fed’s $120 billion/month scheme – only comment about the future. If he is optimistic, the dollar could rise, and if he is cautious, it could fall.

The fiscal/monetary dance comes on the backdrop of outgoing President Donald Trump’s second impeachment – a historic first. The House issued a rebuke to Trump for inciting an insurrection, following last week’s riots in the Capitol.

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