A bipartisan group of Senators agreed on a $1.2 trillion infrastructure
package Thursday evening, paving the way for a concrete bill to hit the
floors of Congressional chambers in the coming days. A group of 10
Senate Democrats and Republicans reached an agreement on Wednesday, one
that is “fully funded” and will not include any tax increases. The bill
is rumored to cost $1.2 trillion over 8 years, with $579 billion in new
spending over the first 5 years. The agreement is a massive step forward
following the collapsed talks between President Biden and GOP Senator
Shelley Moore Capito. The next battle for the bipartisan group is to
appease party leaders, but opposition is expected.To get more news about
WikiFX, you can visit wikifx.com official website.
The news of increased fiscal spending will be applauded at the Federal
Reserve, as Chairman Jerome Powell has highlighted the need for
increased fiscal support to reignite the economy following the pandemic.
Any sort of infrastructure bill will contain funding that will
ultimately help the Fed reach its employment targets coming out of the
pandemic. It is expected that the bill would put billions of dollars
into workforce development and retraining programs that help labor
market participants adapt to the technology of the 21st century. Not to
mention, any bill would generate tens, potentially hundreds of thousands
of jobs in areas such as transportation, construction, and
manufacturing.
Additional fiscal spending on the scale of $1.2 trillion may have USD
bears licking their lips. However, as the economy begins to reopen and
jobs rebound, upward pressure on the Greenback may persist. The Dollar
appears to be caught between strong economic data and a lethal
combination of QE and hot inflation. Without a clear break to the upside
or downside, we may continue to see a gyrating Greenback throughout the
recovery.
The US Dollar Index sits in a precarious position right now, just above
the psychologically significant level of 90. The Greenback has held up
well against this level, despite strong economic data, inflation
concerns, and an unprecedented Quantitative Easing (QE) program. As the
conversation begins to turn to tapering at the Federal Reserve, markets
could begin to see a stronger US Dollar once the intention to slow asset
purchases is communicated. Between the 90 handle and the 0.382 Fib
level at 89.708, the US Dollar has found an extremely strong support
zone, only trading below this level for a brief period in early January.
Taking into account a potential taper in the coming months along with
continued strong economic data, the catalysts are present for the Dollar
Index to push higher even in the face of unsustainable government
spending. Continuing on the current trajectory toward “substantial
further progress,” as the Federal Reserve puts it, may push the Dollar
Index back towards the 0.5 Fib level at 95.545 or even toward pre-COVID
levels near 100. The debate surrounding the recovery and this potential
infrastructure bill revolves around one question – has American
exceptionalism been priced in? Given the Greenbacks resilience in 2021,
holding above 90.00, another potential $1.2 trillion in fiscal spending
may not provide as large a shock to the system as some might think.
|