Trump administration assembled a USD1.2 trillion federal emergency fiscal package that includes sending money directly to Americans. This would temporary boost dollar due to the support offered to ease some fears. Short EUR/USD
- Yesterday, the Trump administration held a press conference which promised an emergency stimulus of USD1.2 trillion, the largest federal emergency fiscal packages ever assembled.
- This includes direct payments of USD 1,000 or more to Americans within 2 weeks to blunt the economic impact from COVID-19.
- Mnuchin’s proposal included USD 300 billion for small business loans, USD 200 billion in stabilization funds, USD 250 billion in cash payments and a possible second round of checks.
- To further try to stabilise the economy, the Treasury Department and Federal Reserve took a step on Tuesday to make it easier for companies to borrow money, while the White House gave more flexibility to taxpayers to delay payments they owe the Internal Revenue Service next month, for an additional 90 days.
- The Trump administration had to act boldly with this enormous fiscal stimulus as Fed has already used up all its ammunition in terms of monetary support for the economy.
- However, reservations expressed by Democrats on Tuesday over various aspects of the package suggested that it could take some time to arrive at a bipartisan agreement that could pass both chambers of Congress.
- Furthermore, it will take at least 2 to 3 months before Americans received the stimulus checks. This was seen during the 2009 crisis whereby it took more than two months from the signing of the bill to checks hitting the mail.
- Regardless, the stimulus package will spur slight optimism in the US compared to countries which are still lacking in fiscal stimulus as of yet.
- We believe that the situation in Europe is still worsening with most European countries closing its borders and businesses. This could also spark the debt crisis that we saw previously in Greece in 2015.
- EUR/USD could head lower towards 1.0500 price level in months to come as more European countries head into recession.
Fullerton Markets Research Team
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