For several days, the market has speculated about a great stimulus plan that was being prepared by American politicians to alleviate the economic effects of the coronavirus epidemic. Various amounts were given in terms of the size of the package. Finally stood at 2 trillion dollars. This is about four times more than the annual GDP of Poland.
The US Senate has adopted an economy support plan, under which Americans will receive USD 600 for each child, USD 1,200 will receive people with an annual income of up to USD 75,000, and unemployment benefits will be extended by 13 weeks. Furthermore, a USD 350 billion loan plan was developed for small businesses. These loans will be non-refundable if the employer maintains jobs for the money received and does not dismiss employees. A loan package worth USD 500 billion has been prepared for American corporations.
However, the market did not react to this information because it seems that it has already discounted it earlier, as evidenced by huge increases on Wall Street. Thus, the market may need new stimuli. Such an event, in turn, may be the number of initial unemployment claims, which were submitted last week in the United States.
The spread in forecasts for the final reading is huge. From 860 thousand, estimated by UBS, up to 4 million, according to Citi. Along the way, we have Goldman Sachs with a forecast of 2.25 million or Bank of America with an estimate of 3.4 million. These expectations are beyond the current scale. Even during the Great Financial Crisis, unemployment has not increased so rapidly. At that time, the number of claims exceeded barely 0.5 million. So these might probably be shocking figures.
The US dollar, in turn, seems to be weakening now. The EUR/USD exchange rate jumped from 1.0650 to 1.0940 in a few days. Weaker data from the US may only strengthen this last trend. It seems that thanks to the Federal Reserve, there is no shortage of dollars on the market, hence the US currency no longer needs to be bought at any price. Looking at the positioning of investors on futures contracts on the dollar index, we may see that despite interest in continuing trade in dollar increases its value is decreasing. This may also not be good news for USD.
These data from the US labor market will be published today (March 26) at 13.30. In turn, 30 minutes earlier the decision of the Bank of England about interest rates will appear. BoE has already cut rates twice at special meetings to 0.1%, hence no actions of the central bank are expected after today's meeting.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex Cinkciarz.pl service)
The above comment is not a recommendation within the meaning of the Regulation of the Minister of Finance of October 19, 2005. It has been prepared for information purposes and should not be the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this commentary. Copying or reproduction of this document without the written permission of Conotoxia Ltd. is prohibited.
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