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EUR/USD resuming rise amid doubts over US fiscal stimulus

EURUSD_resuming-rise_Forex_FXPIG

EUR/USD has resumed its rise after CNBC reported that White House plans for economic response to coronavirus are not there yet. Bond yields and stocks are reversing gains.

It's Donald's Draghi moment – If President Trump announces broad stimulus measures to counter the coronavirus carnage, markets could rally and EUR/USD has room to fall to 1.13. If his message falls flat, equities could plummet and the consequent rush into bonds would push yields and the dollar lower.

Why is Trump's fiscal support so important?

Ahead of this severe health crisis, central banks' ability to act had been limited. The Federal Reserve's interest rate stood at 1.75% before its emergency cut – well below pre-2008 levels and below the post-crisis high of 2.50%. Other policymakers have limited scope to act.

That leaves governments with the power to act in several ways. Officials have the power to impose lockdowns, helping contain the disease but with a severe impact on the economy. They also have the ability to provide fiscal stimulus, via tax relief plans, infrastructure spending, and more.

Policymakers' strongest tool is to create confidence. Back in 2012 at the peak of the European debt crisis, Mario Draghi managed to turn around the fate of the common currency. He said that the European Central Bank will "do whatever it takes" – and that was enough. The euro jumped and the ECB later introduced a program that it never needed to use – as private investors already began back into European debt.

Can Trump lead by pledging action now and vowing to do whatever is necessary? So far, the president dismissed the disease as a hoax, compared it to the flu, and blamed the Fed among others.

However, with stock markets hardly recovering from Monday's bloodbath – which includes the halting of trade for the first since 2008 – he may change tack.

The White House's press conference is scheduled for 21:30 GMT, but Trump may speak earlier or conversely provide the press with details of the plan.

The next move depends on the president, not on additional virus headlines such as the number of infections, deaths, or other developments in Europe.


Source: fxstreet

EUR/USD has resumed its rise after CNBC reported that White House plans for economic response to coronavirus are not there yet. Bond yields and stocks are reversing gains.

It's Donald's Draghi moment – If President Trump announces broad stimulus measures to counter the coronavirus carnage, markets could rally and EUR/USD has room to fall to 1.13. If his message falls flat, equities could plummet and the consequent rush into bonds would push yields and the dollar lower.

Why is Trump's fiscal support so important?

Ahead of this severe health crisis, central banks' ability to act had been limited. The Federal Reserve's interest rate stood at 1.75% before its emergency cut – well below pre-2008 levels and below the post-crisis high of 2.50%. Other policymakers have limited scope to act.

That leaves governments with the power to act in several ways. Officials have the power to impose lockdowns, helping contain the disease but with a severe impact on the economy. They also have the ability to provide fiscal stimulus, via tax relief plans, infrastructure spending, and more.

Policymakers' strongest tool is to create confidence. Back in 2012 at the peak of the European debt crisis, Mario Draghi managed to turn around the fate of the common currency. He said that the European Central Bank will "do whatever it takes" – and that was enough. The euro jumped and the ECB later introduced a program that it never needed to use – as private investors already began back into European debt.

Can Trump lead by pledging action now and vowing to do whatever is necessary? So far, the president dismissed the disease as a hoax, compared it to the flu, and blamed the Fed among others.

However, with stock markets hardly recovering from Monday's bloodbath – which includes the halting of trade for the first since 2008 – he may change tack.

The White House's press conference is scheduled for 21:30 GMT, but Trump may speak earlier or conversely provide the press with details of the plan.

The next move depends on the president, not on additional virus headlines such as the number of infections, deaths, or other developments in Europe.


Source: fxstreet

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