Investors have been waiting for this for months, even during Donald Trump's presidency, and they finally got it with the $1.9 trillion relief plan for the US economy approved yesterday. The optimism in the markets seemed to be pretty well in evidence as a result.
Following an earlier vote in the Senate also, Democrats in the House of Representatives approved a massive $1.9 trillion aid package for the economy to soften the economic collapse dealt by the pandemic, putting the world's largest economy on a more optimistic path to recovery and return to the way it was before the virus hit. The plan includes a new round of direct payments of up to $1,400 for most Americans, extends federal unemployment benefits of $300 a week and provides hundreds of billions in aid to individual states and local governments. President Joe Biden is expected to sign the bill into law as early as this Friday, which means a stream of new cash will soon flow to households, businesses or local governments.
It's possible that some of it may hit the markets, just as it did when Americans were getting paychecks of $1,200. Then, for example, on cryptocurrency exchanges there were new customers whose deposits were just $1200. Americans could use the money not only to buy digital currencies, but also to buy stocks, because the current interest among individual investors in the American stock market seems to be huge. Nevertheless, the bull market on Wall Street already seems to be continuing, as the aid package definitely boosts the US economy. On Wednesday, the Dow Jones Industrial Average index set a new all-time high, and this morning futures are trading on the upside at 32480 points. Risk appetite was also likely boosted by data showing that the US annual inflation rate rose to 1.7 percent in February, in line with consensus, while core inflation came in slightly below expectations at 1.3 percent.
The lower-than-expected US inflation could in turn lead to a correction in US bond yields, which could also contribute to a weaker US dollar. EUR/USD rose above 1.1900, and GBP/USD came close to 1.4000. However, despite the current reading of inflation data, it is worth remembering the still growing expectations for price growth in the future. Inflation expectations in the US, i.e. what inflation market participants expect on average over the next 5 years, stand at 2.47%. If this translates over time into current data readings, yields could start to rise again.
Today's important event for markets and the Euro could be the European Central Bank meeting, where we may hear comments on the single currency exchange rate or rising debt yields.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex service of Cinkciarz.pl)
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