This month is expected to be politically intense in the United States. According to the results of the Senate elections, both Democrats filled in the seats, while the Republicans were dismissed. As a result, Trump supporters tried to disrupt the Congress meeting yesterday, which was supposed to approve the results of the past elections. However, their actions seem to be more like agony. On Thursday morning, Congress continued its work, approving the election of Joe Biden as the new president.
The chaos in Washington failed to seriously affect the markets, since short-term pull in the US dollar and sell-off in favor of protective assets were not observed. This will not change the trend, but it will look more like a slight difficulty. After that, everything will return to normal.
It is quite hard to take time analyzing current events in relation to the U.S. Capitol attack, so it is much more important to pay attention to the Democrats, who now have the full control. Markets have previously been built on such a development, and this trend is now able to strengthen. Democrats, in turn, will be able to pass necessary laws in a shorter time.
The dominance of the Democratic party carries increasing risks of additional fiscal stimulus, tax increases, and increased regulation. Here, there is no doubt that the companies most severely affected by the pandemic will benefit.
It is now the right time to remember the promises that Biden made during the election campaign, wherein he talked about stimulus checks for $ 2,000, if the majority of Democrats rule in the Senate. Government spending on supporting the population is expected to grow significantly in the next few years.
On the other hand, the Fed should expand QE to maintain control over the government's debt service costs through low rates by way of a massive buy-back program. All of this will put pressure on the US dollar.
The US currency index has been steadily declining since May. A serious break in the trading range occurred in June, when market players began to forecast that the Republicans would lose their power.
During the final days of 2020, the dollar index went below 90 points, and then sharply consolidated under it with the beginning of 2021. The last time it traded outside this psychologically important level (90 points) was almost six years ago. An important area of the lows of the beginning of 2018 is located at the level of 89 points, which is very close to the current values.
If sellers manage to break down the 89th mark, then we can expect the US dollar to weaken again against a basket of competitors. In this case, the indicated currency can be considered to the next bottom, which may well be the consolidation levels of 2014, that is, at the level of 80.
It is noteworthy that the US dollar index began to sharply rise from these marks last 2014. Signals about the curtailment of quantitative easing contributed to this movement. At the moment, there are practically no signals from the American regulator for a possible change in the program parameters. However, the results of the January meeting will be announced at the end of this month, where new information should be considered. There will most likely be data on the US labor market, where the situation is quite alarming.
Yesterday's ADP report indicated a 123,000 decline in December employment, which is the first decline in private sector employment since April. As labor market data weigh on the FOMC's decision, Friday's official statistics could have a significant impact on the US dollar, which has not been seen for a long time. This will happen if the actual figure diverges from the expected average forecast of employment growth of 69 thousand in December.
