US Dollar Drops as Discussion of Second Stimulus Bill Lingers

US Dollar Drops as Discussion of Second Stimulus Bill Lingers

The US Dollar has dropped as COVID-19 cases surge, and stimulus bill discussions falter. What’s next for the currency?
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The currency markets are facing some uncertainty, even as several countries are reporting positive news of COVID-19 vaccinations. The US Dollar is the big victim here, going through some significant drops in the past few days.

This could be a result of the continued surge in virus cases, which looks like it will exist well into 2021. Furthermore, talks of more stimulus checks have sparked added worry and concern. What does the US dollar value look like going forward?

The US Dollar Stutters as COVID-19 Cases Surge

Image courtesy of MarketWatch.

The US Dollar Index shows that the currency has dropped by 0.37%, trading near 92.02 at press time. The past few weeks have been volatile for the dollar as a result of the US election and the pandemic. As we shall see, analysts think that this may continue for the next few months.

Some investors may have hoped for a better performance following the end of the US election. But with 100,000 cases a day, it appears that it will not be happening for a while. In fact, this could be worse, as the holiday season could result in people ignoring health and safety warnings.

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There is the hope that the vaccine will be out by Christmas time, but this is not certain. At any rate, the spread of infection is so fast that it may not be enough to stem currency worries. While not quite as bad, Europe appears to be facing similar issues, with Germany, in particular, considering new lockdown rules.

Image courtesy of V-Lab.

The near term does not look pleasant for the United States, and volatility will likely be in the short to medium-term. Analysts are on the pessimistic side, predicting a negative forecast if the index remains below its 200-day moving average. What’s worse is that a feasible vaccine could send the dollar plunging even further.

Vaccines are almost certain to ship in the new year, if not in late December. Citibank has said that it expects this shipping to precipitate a downtrend in the dollar. The bank even projects that this could be as much as 20%.

Another Stimulus Check Around the Corner?

But there could yet be more trouble for the US dollar. The loose and sometimes downright worrying fiscal decisions have analysts on edge. One of the primary reasons why institutions are projecting a decline in the dollar is because of the Federal Reserve.

The Fed is projected to keep rates low, which would exacerbate inflation. Countries managing the virus better and maintaining their economies will further weaken the dollar.

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However, there is also news of the stimulus bill and its effect on the economy. This is one of several proposals to improve the flagging US economy. Congress is currently at loggerheads over a stimulus bill, but that hasn’t stopped Biden from thinking ahead.

Americans themselves will be delighted to receive the aid of a stimulus check, but the question is that there is no word on when this might happen. The deadline for the bill is December 11, and negotiations haven’t been very fruitful.

A strong stimulus bill would have sparked spending among households, but the deadline adds pressure to the scenario. Ordinarily, the holiday season would have been a strong time for the market, but it now appears uncertain.

Biden’s initially proposed plans, besides one relating to the stimulus, would have more of an impact in the long run. Until then, the US dollar and economy is facing a tough time, by the looks of it.

Conclusion

The US is facing a tough time, but in terms of its COVID-19 spread and economy. Various ideas are under consideration, while former authorities are suggesting novel ones like a Digital Dollar. The fact that there is such a frenzied discussion indicates the precariousness of the situation.

While the dollar has been on the rise for years, it is the next few months that will be more important than ever. Medium to long-term forecasts are pointless at this point, with a short-term prediction itself being so difficult. The only certainty investors can expect is a period of uncertainty.

What do you forecast for the US Dollar? Can the COVID-19 fallout be reined in? Let us know what you think in the comments below.

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