Published: December 16th, 2020
On Friday, December 11, the forex market tanked during the early morning trading session in favor of the greenback. Market experts attribute the slip to stimulus pullback and COVID-19 vaccine approval. Meanwhile, the euro was mostly stable due to the quantitative easing measures that the European Central Bank (ECB) announced.
The forex market opened with a decline on Friday, December 11, swaying in favor of the U.S. dollar. The slight climb of the greenback came as it became more apparent that the U.S. is less likely to push through any stimulus package before the inauguration of president-elect Joe Biden.
Meanwhile, both the euro and the pound dipped slightly, weakening the markets of both the EUR/USD and GBP/USD currency pairs. However, the euro remains slightly stronger after the European Central Bank (ECB) announced further quantitative easing measures to prop the euro bloc economies.
After Friday, December 11's trading, the markets quickly shifted to the Food and Drugs Administration of the U.S. (FDA) meeting hoping that the agency would give an emergency use approval for the Pfizer vaccine last step of the agency's consent process.
Simultaneously, the hopes of a new stimulus deal have been dashed after Senate Majority Leader Mitch McConnell announced that the Senate Republicans would not back the bill agreed on previously.
There was widespread hope that a new coronavirus stimulus package negotiated by the Democrats and Republicans would inject more than $900 billion and ease the suffering of millions of Americans. The expectations were particularly high in the past week when House Majority Leader Nancy Pelosi hinted at the good progress achieved by the negotiating teams.
Even though Mitch McConnell's announcement watered down the hopes inspired by Pelosi, the arising situation boosted the dollar further. However, market analysts are worried that while individuals trading forex are happy now, the conditions created could present a negative repercussion elsewhere, especially when new coronavirus infections are breaking all imaginable records in the U.S.
Coupled with the last week's jobless claims, which rose to their highest since mid-September, the next few days may look gloomier than anyone is willing to admit, one market analyst said.
In what seems to be a contrast of styles in approach to the current situation, the ECB has reiterated that it will continue supporting the Eurozone economy with increased expansion of the bank's Pandemic Emergency Purchase Program. Europe's central bank is putting a further €500 billion (Approx. $606 billion) into the program, hoping that the funds will keep the Eurozone economies active until the effects of the vaccine are felt, and life gets back to normal.
The ECB move is a stark contrast to what the U.S. lawmakers are pushing through.
Forex brokers anticipate a continued strengthening of the euro following these measures. However, ECB President Christine Largade has hinted that her organization will keep an eye on the currency trends. Despite such firm assurance, the bank has not given any suggestions to intervene to reign in on the currency. The ECB seems to favor boosting inflation in the bloc, a confusing stance considering that a strengthening euro might make such a feat unattainable.
Meanwhile, back in the U.S., the markets were optimistic about the CDC's signoff of the Pfizer vaccine. On Friday, December 11, the FDA gave an emergency use approval for the Pfizer vaccine and paved the way for the CDC's director, Robert
Redfield, to sign it off for distribution to the entire country. With his consent, millions of vials are now on the way to various storage facilities throughout the country.
With the number of new coronavirus cases on the rise, no clear sign of a stimulus package, and unemployment numbers spiking to reflect the increasing disease cases, vaccine approval held all hopes.
The restrictions enforced to curb the spread of coronavirus and the business closures associated with the pandemic worsen the already dire situation.
However, the good news is that the concerned agency has lived to its expectations. The FDA panel recommended the Pfizer and BioNTech vaccine for emergency use on Thursday, December 10.
The recommendations have since been signed off by the CDC director, setting off a massive logistical campaign that will see millions of doses distributed in the whole of the U.S.
Meanwhile, a new study now says that the U.S. might require about $4.5 trillion, about five times what the lawmakers had earlier proposed, to take the country back to pre-pandemic conditions. The Groundwork Collaborative, an economic think tank, claimed that America might need a stimulus package worth between $3 trillion and $4.5 trillion to prop the country's businesses and workers, produce optimally, and bring down the unemployment rate to 3.5%.
Mark Paul, a political economist at the New College of Florida and the report's co-author, said the country needs a stimulus, and fast. He added that each day that goes by, more and more Americans are disenfranchised from the economy. Every waiting day more people face increased risks of eviction besides falling behind on bills.
The latest bipartisan proposal worth $908 billion faces a sea of hurdles and might not be approved before Christmas. The negotiations are in chaos because Senate Republicans, House Democrats, and the White House cannot agree on key issues such as aid for state governments, stimulus checks, and liability insurance for companies during the pandemic.
Paul said that despite the country having the tools to put the country back on track, Congress lacks spine and political goodwill. He said the package that Congress is debating would leave the estimate of actual unemployment in the double digits.
Forex markets tanked as lawmakers strode deeper into confusion. Despite hopes inspired by House Majority Leader Nancy Pelosi on the talks' direction, the White House, Congressional Democrats, and Senate Republicans have disagreed on the key issues surrounding the $900 billion package.