What can’t you do to win the presidential election! Even one's own opinion can be abruptly reversed. For most of his term in office, Donald Trump has been an ardent supporter of the weakening dollar, but in May he returned to the position of former US administrations about the need for a strong currency. And I must say that the owner of the White House has a reason for this. In the context of a large-scale fiscal stimulus, the emphasis is shifting from trade and competitiveness to financing a growing budget deficit. In addition, you can always say: look how firmly the greenback stands on its feet, it means that everything is in order with the US economy!
Donald Trump needs to find a delicate balance between stock indices and the US dollar, which, in conditions of increased sensitivity of investors to risk, are moving in the opposite direction. The S&P 500 has always been perceived by the president as an indicator of the success of his activities as head of state, while the March collapse of the stock market led to a significant decrease in the Republican's chances of winning the fall election.
The dynamics of the S&P 500 and the popularity of Democrats and Republicans
In this regard, it is not surprising that the facts of the decline in industrial production (-11.2%) and retail sales (-16.4%) at the fastest pace since the start of accounting in 1911 and in 1992, respectively, are presented as nadir in dynamics of indicators. Say, it can no longer be worse than in April. Yes, retail sales account for about 42% of all consumer spending, or 70% of GDP, and their 23% fall in two months deducted, according to ING estimates, more than 6 pp from the nominal gross domestic product, but the worst is already behind, right?
We need to be sympathetic to the words of Jerome Powell that you should not bet against the American economy, and the Fed has not ended its arsenal of ammunition. According to the FOMC chairman, the current recession is not comparable to the Great Depression, although it is likely that it will be necessary to wait until the end of 2021 to restore the previous conditions. Similar rhetoric of the head of the central bank and interpretation of macro statistics do not allow the S&P 500 to fall deeply.
As for the US dollar, the main driver of its growth is rumors about the escalation of the conflict between Washington and Beijing. I must admit that the White House skillfully supports the seemingly dying bonfire of the conflict. Another portion of the oil in his fire was the tightening of licensing requirements for companies trading with Huawei.
The euro has its problems above the roof. Following the release of German GDP data for the first quarter, the split in the eurozone continues to increase.
The German indicator turned out to be better than that of the majority of the members of the currency bloc, including due to the later introduction of measures to limit economic activity (since March 23) than in other countries, and the fact that the production sector survived the crisis easier than the services sector and tourism. In this situation, the chances of a EUR / USD pair breaking through the lower border of the 1.077-1.09 range look slightly higher than the upper.
LiteForex analytics Dmitry Dimidenko
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