So far this week, the US dollar has lost 0.32 percent against a bundle of its main competitors, falling for the second consecutive week.

Last week, US President, Donald Trump confirmed that he is infected with the coronavirus. Despite the concerns regarding the health of the president, Trump was finally discharged from the hospital, returning to the oval office this week. According to his doctor, the president has had no symptoms for more than 24 hours, while being fever-free for more than 4 days.

Many criticized Trump’s late behavior, given his tendency to underplay the virus. In any case, he seems to be doing well and took the opportunity to announce his decision to withdraw from the stimulus talks with the Democratic party, promising to pass a bill after the November elections.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major stimulus bill that focuses on hardworking Americans and small business,” he posted on his Twitter account.

This caused unease across the US stock markets, which closed in the negative territory at the end of Tuesday’s session.

Afterward, he said on his Twitter account that he is willing to sign a stand-alone bill for stimulus checks. He also called the Democrats to approve a 25 billion dollars stimulus for the airline sector, as well as a paycheck protection program for small businesses that is worth 135 billion dollars.

Trump’s latest announcements relieved investors, making US stocks recover from the previous session’s losses.

The United States continues dealing with the Covid-19 sanitary crisis, which so far has killed 216,784 Americans and has infected 7,776,224. The United States leads the world in the number of infections, followed by Brazil, India, Russia, and Colombia. Cases are currently surging in 39 states, as states like Wisconsin have doubled its number of reported cases in the last month, all while Trump’s latest declarations about the issue keep alarming the medical community.

This week the markets received a few relevant pieces of information about the state of the US economy. On Monday, Markit economics released the Services PMI for September, which stood at 54.6, remaining unchanged from the previous month’s figure and signaling an expansion of the sector. The composite PMI figure signaled a slightly lower expansion of the business sector, standing at 54.3 in September, below August’s 54.4 and lower than what the analysts’ expected.  According to the Institute for Supply Management, the services PMI stood at 57.8, improving from August’s 56.9 and over the analysts’ expectations, who foresaw it to be at 56.3.

On Tuesday, the Bureau of Economic Analysis reported a 67.1 billion dollars deficit in the trade balance, after being at -63.4 billion in the previous month, and higher than the analysts’ expectations, who foresaw it to be at -66.1 billion. The Federal Reserve Chair, Jerome Powell called for additional fiscal stimulus, saying that it’s preferable to do too much than too little and claiming that economic recovery will be stronger and faster if monetary policy and fiscal policy “continue to work side by side”.

On Wednesday, the Federal Reserve released the FOMC minutes. In the minutes, the bank’s monetary policy committee stated that they are not willing to raise the interest rates until the economy reaches full employment and inflation reaches the bank’s 2 percent target. The Federal Reserve officials also expressed their concerns about the threat that the lack of help from the Congress poses for economic recovery.

Eurostat revises GDP, employment figures; EUR weakens against the USD; Eurozone economy has a lot of ground to regain.

Eurostat recently revised down the third quarter gross domestic product figures, showing that the eurozone economy grew less than previously expected, though at its fastest rate since 1995. Nevertheless, the GDP still decreased less than expected in the three months since June.

In quarterly terms, the GDP climbed by 12.5 percent (quarter-on-quarter), below the previous figure of 12.6 percent and against expectations. In yearly terms, the figure was also revised down at 4.3 percent in the third quarter, though this was better than expectations of 4.4 percent.

The agency attributed the third quarter rebound to an increase in both consumer spending and business investment. Among the best-performing countries were France, Spain and Italy, all of whom registered double-digit GDP increases.

Employment rose by 1 percent in the third quarter, better than the expected 2.8 percent decline. Eurostat commented that while the impact of stimulus measures certainly aided employment levels, changes in employment hours were more prominent.

Despite the good news, the outcome of the Brexit negotiations remains uncertain, with both sides unable to agree on key issues.

The EU has signaled its willingness to continue with the negotiations after the deadline is reached, even as the British Prime Minister plans to meet with the European Commission President to discuss the issue.

European Union members are also struggling to reach a consensus in fiscal policy matters. Hungary and Poland are currently vetoing the implementation of a 2 trillion euro fiscal stimulus package, which can jeopardize their own receipt of funds should the other 25 Eurozone members push for an exclusionary ad hoc agreement. The delay in the implementation of this stimulus package may hinder the economic recovery of the Eurozone, increasing concerns about the fate of the union.

Economic Calendar

Last week, important data about the economic situation of the Eurozone was released. The Eurozone manufacturing sector expanded at a faster pace in November at 53.8 after being at 54.8 in October, while the services sector declined at 41.7. The business sector also declined at 45.3, though higher than expectations of 45.1.

The Core Consumer Price Index climbed by 0.2 percent in November according to preliminary data, remaining in line with analysts’ expectations. In yearly terms, it decreased by 0.3 percent, below expectations of 0.2 percent.

Retail sales rose by 4.3 percent in yearly terms, higher than forecasts of 2.7 percent. In monthly terms, they surged by 1.5 percent, also higher than expected, as analysts predicted 0.8 percent.

German industrial production surged in October, increasing by 3.2 percent after gaining 2.3 percent in September. Analysts attributed this increase to the surge of the German automobile sector, which gained 10 percent during the month.

Underlying Risks Threaten Euro’s Performance

So far this week, the euro has had a poor performance against the US dollar, dropping by 0.03 percent and breaking a three-week gaining streak. This month, the euro has gained 1.57 percent against the greenback, continuing the positive trend that began in November.

On the other hand, the euro surged by 0.77 percent against the pound sterling, rising for the third consecutive week. In monthly terms, it gained 1.53 percent, breaking a two-month losing streak.

It was somewhat surprising that the euro remained steady after the markets learned about the German industrial sector rebound, though it makes sense taking into consideration the underlying risks faced by European markets due to the negotiation deadlocks and the advance of the COVID-19 pandemic.

Given the fiscal deadlock, the ECB is now expected to expand its bond purchase program. Analysts predict that the central bank will add €500 billion to its emergency bond-perchasing program and expect it to be extended beyond June 2021.

Eurozone Economy Has Much Ground to Regain

As we already mentioned, the Eurozone gross domestic product decreased less than expected in yearly terms, mainly pushed up by an increase in consumer spending and business investment levels, which in turn is being boosted by an increase in government spending.

Despite the good news, the Eurozone economy has still to regain a lot of ground before getting back to pre-pandemic levels.

“A gap as bad as that seen in 2008 still remains, although we have to bear in mind that the economy was not completely open in the third quarter either,” commented an analyst at ING. “Still, this explains why we don’t expect the economy to fully recover before 2022, as there is a lot of ground to regain.”

Inflation is still far from the ECB’s target, as the latest Consumer Price Index reading showed a 0.3 percent contraction.

The unemployment level signals a slight worsening in the labor market at 8.4 percent after being at 8.3 percent in September.

Upcoming Events

• On Thursday, Eurostat will be publishing the Consumer Price Index for November.

• On Friday, IHS Markit will be releasing December’s preliminary PMI data.

• Also on Friday, Germany’s Federal Statistical Office is publishing the Producer Price Index.

House of Representatives agrees to President Trump’s proposal to increase aid to Americans; US Dollar Index falls by 0.34%; US economic data improves.

The US House of Representatives decided to back President Trump’s proposal to give additional stimulus payments to Americans in need, which has been a recent point of contention between both parties. Now the decision is in the hands of the Republican-controlled Senate, which risks losing its majority in the upcoming Georgia Senate run-off elections.

“To reject this would be in denial of the economic challenges that people are facing and it would deny them, again, the relief they need,” said Speaker of the House Nancy Pelosi.

Next week, Georgians will decide whether they prefer Republicans Kelly Loeffler and David Perdue to hold the state’s Senate seats, or instead support Democrats Raphael Warnock and Jon Ossoff, which would give the Democratic Party control of the House, Senate and presidency for the first time since 2011.

The race is very close, though betting for a Republican win seems safer at the moment. President Trump is set to campaign on the eve of the election.

If Senate Majority Leader Mitch McConnell chooses to hold a vote on the stimulus bill, he risks not getting enough votes to provide additional stimulus, putting at risk the Republican campaign in Georgia. It’s also a big dilemma for the party, which usually advocates for fiscal conservatism, especially since the current situation requires flexibility.

Until now, McConnell has not commented on the House of Representative’s decision, though an ongoing attempt to force a vote by Vermont Senator Bernie Sanders could be successful and force him and his colleagues to take a position.

The coronavirus crisis, even amid the current vaccination campaign, continues advancing in the United States. So far, 19,781,718 cases have been reported, as well as a death toll of 343,182, making the United States the most affected country in the world. Nearly 2 million Americans have already been vaccinated, below the government’s goal to vaccinate 20 million before the end of the year.

Economic Calendar

So far this week, no relevant data about the state of the US economy have been released, mainly due to the end of the year holidays.

Last week, the annualized gross domestic product for the third quarter was released at 33.4 percent, after being at 33.1 percent in the previous reading. It’s a significant improvement from last quarter’s figure, which stood at -31.4 percent.

The US Census Bureau reported that durable good orders rose by 0.9 percent, higher than expected, though lower than October’s 1.8 percent surge. Non-defense capital goods orders gained 0.4 percent, lower than expected and below October’s 1.6 percent.

Dollar Languishes

The US Dollar Index, which measures the greenback’s performance against a bundle of its main competitors, fell by 0.34 percent, relinquishing the previous week’s gains.

The House of Representative’s decision increased uncertainty regarding the future of the Republican-controlled Senate, now that the Georgia run-offs are approaching. The fact that the US is expanding its deficit strengthens the case for a continuing dollar depreciation.

“We see depreciation in the dollar continuing into 2021,” said a team of strategists at Goldman Sachs. “Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.”

The dollar has been losing steam over the last couple of months. So far this month, the greenback has dropped by 2 percent, posting losses for the second consecutive month as it fell by 2.31 percent in November.

US Economic Data Improves

Since our last report, US economic data has gotten slightly better.

The quarterly gross domestic product figure was recently revised up, higher than expected at 33.4 percent, according to data released by the Department of Commerce. It seems that consumer spending led the recovery in the third quarter, though there are already signs of it cooling off as retail sales declined in October and November.

Consumer Price Index data remained essentially unchanged since our last report, signaling an improvement in the monetary realm. In the same way, unemployment data signals an improvement in the labor markets.

Upcoming Events

This week is New Year’s eve, so not many relevant data about the state of the US economy is expected to be released.

• On Tuesday, October’s S&P/Case-Shiller Home Price Indices will be released.

• Pending home sales data for November will be published on Wednesday.

• Jobless claims data will be released on Thursday by the US Department of Labor.

Stocks, US dollar fall in ancitipation of a Democratic victory.

According to recently released electoral data, the Democratic Party will likely grab the two Georgia Senate seats that were in dispute, giving the party a trifecta for the first time since 2009. This would allow President-Elect Joe Biden to govern with no opposition, though Trump’s claims of fraud will be dealt with in Congress today.

As of this writing and with 98 percent reporting, Democratic Candidate Raphael Warnock leads the race against his Republican counterpart, Kelly Loeffler, with 50.6 percent of the vote, while his colleague Jon Ossoff currently has an advantage against his Republican opponent David Perdue with 50.1 percent.

“We were told that we couldn’t win this election. But tonight, we proved that with hope, hard work and the people by our side, anything is possible,” said Warnock during a Livestream message. “I am going to the Senate to work for all of Georgia, no matter who you cast your vote for in this election.”

Warnock would be the first Black Georgian Senator, though many are concerned over his record of anti-Semitism and domestic abuse. Ossoff would be the youngest member elected to the post.

Now eyes are on Congress, which is set to meet today to certify the electoral college results. Trump has called on Vice President Mike Pence to reject the certification of certain electors. The certification could take hours, since some Senators and Representatives are planning to contest the result of certain states, such as Pennsylvania, Wisconsin, and Georgia, following evidence of election fraud.

Analysts claim that Trump’s attempt to overturn the election results will likely fail, since he would need support from the majority of Congress, which at this point seems unlikely. Senate Majority Leader Mitch McConnell has expressed his disagreement with the president on some key issues, also calling Senators to disregard Trump’s requests. So far, eleven Republican Senators have joined Trump in his claims, as well as more than 100 House Republicans.

Besides all this political drama, the United States keeps struggling against the spread of COVID-19, which has infected around 21,579,641 Americans and killed 365,664, making the U.S. the most affected country in the world. The U.S. is currently amid a vaccination campaign, which has been heavily criticized given that it has been slow.

Economic Calendar

This week will see a few important data regarding the current state of the US economy.

On Monday, Markit Economics published the Manufacturing PMI, which signaled an expansion of the sector in December with a reading of 57.1, higher than November’s 56.5. This is the highest figure since September 2014 and is part of an eight-month gaining streak.

“Amid a significant deterioration in vendor performance, cost burdens and selling prices soared, as firms sought to partially pass on higher input prices,” reported IHS Markit.

The Institute for Supply Management (ISM) confirmed this data on Tuesday, reporting that the Manufacturing PMI stood at 60.7, higher than expectations of 56.6 and the previous month’s 57.5. “Output expectations moderated slightly, however, as the post-election spike eased and virus cases surged once again,” IHS Markit added.

Dollar Sinks on Prospect of Democratic Trifecta

The markets don’t seem happy with the idea of a Democrat-controlled Senate, and this is being reflected by the recent performance of the US dollar. Also because of this reason, stock markets have been volatile recently.

It seems that the main cause behind this pessimism is the fact that a Democrat trifecta would make additional fiscal stimulus measures more likely, which is in general bad news for the dollar’s performance.

“A Democratic-led government is expected to add more stimulus to help mitigate the virus crisis and…that means that there’s going to be a weaker dollar,” commented an analyst at BNP Paribas.

Rising taxes and further regulations are also among the possible measures that are concerning the markets.

So far this week, the US dollar has dropped by 0.69 percent against a bundle of its main competitors, continuing a two-week losing streak.

US Economy Seems Solid

Since our last report, economic data have remained unchanged.

The quarterly gross domestic product figure stands at 33.4 percent, higher than expected. Inflation data has also surpassed expectations, signaling an improvement in the monetary realm, while unemployment levels stood at 6.7 percent, lower than expected.

Upcoming Events

• Today, the Federal Open Market Committee will release the minutes of its last meeting.

• On Thursday, the US Department of Labor will publish initial and continuous jobless claims data.

• Also on Thursday, the Institute for Supply Management is releasing the Service PMI for December.

ECB disavows any fiscal tightening; EUR loses ground against USD; Eurozone inflation data worsen.

The European Central Bank recently released its monetary policy meeting minutes, showing that the bank’s policymakers supported the decision to continue with an accommodative monetary policy stance until March 2022.

The committee also expressed concerns regarding the future of the Eurozone economy, as they expect the economy to return to pre-crisis levels by the middle of 2022.

European Central Bank President Christine Lagarde recently warned against stopping stimulus measures now that economic recovery is in sight.

“Any kind of tightening at the moment would be very unwarranted,” she commented, adding that doing so could lead to “very serious risks”.

The Eurozone continues to struggle with inflation and the effects that exchange rates are having on it. The recent appreciation of the euro is a matter of concern for policymakers, since it is making exports more expensive and hurting local producers.

“It was pointed out that the nominal effective exchange rate currently stood at an all-time high and that the recent appreciation could contribute significantly to the subdued inflation outlook,” stated the ECB Monetary Policy Committee in its minutes.

The Eurozone economy is expected to rebound by 5.3% this year, as many expect the economy to return to normalcy now that a vaccination campaign is underway.

The ECB Monetary Policy Committee is expected to meet next Thursday.

Economic Calendar

This week, the markets learned some relevant information about the state of the European economy. On Wednesday, Eurostat reported that industrial production stood at 2.5%, against October’s 2.3% and expectations of 0.2%. In yearly terms, it fell by 0.6%, higher than expectations of 3.3% and the previous month’s 3.5% drop.

Euro Loses Ground Against the Dollar

So far this week, the euro has dropped by 0.63%, breaking a two-week gaining streak.

Many link this sudden weakness of the euro with the recent strength of the US dollar, as the markets expect President-elect Joe Biden to announce a very ambitious fiscal stimulus package. Those expectations made traders rush from bonds to stocks and the dollar.

“With labor really struggling, there’s an argument that we could push for a higher stimulus number,” commented an analyst at OANDA. “In the end, markets are anticipating that we’re going to see more stimulus than what is expected in Biden’s first 100 days and that’s why we’re seeing the dollar holding up.”

As we already mentioned, European policymakers have been very concerned regarding the recent appreciation of the euro, as it poses a problem for exporters. Many speculate that this opens the doors for a Forex intervention, though it’s not clear if such a step is likely at this point.

Eurozone Inflation Data Worsen

Since our last report, inflation data have worsened. In yearly terms, the Consumer Price Index fell by 0.3%, higher than expectations of -0.2%. In monthly terms, the Consumer Price Index remained in line with expectations at -0.3%.

Inflation remains too low, taking into account that the European Central Bank aims for a 2% inflation level.

The unemployment rate has improved at 8.3% according to the last reading, and better than expectations of 8.5%.

Gross domestic product data have remained unchanged until now.

Upcoming Events