Home Artikel Market News Here The Reasons Why Dollar Could Drop Further This Week

Here The Reasons Why Dollar Could Drop Further This Week

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1) Extra Unemployment Benefits Will Be Expired

On Monday, more than 20 million Americans will lose the $600 a week extra unemployment benefits that kept them afloat for the past few months.

Even the official deadline is July 31st but based on the way states calculate and pay these benefits the last payment for most people would be as of July 25th and July 26th.

The effects can be see as these households will be immediate drop in income, with many businesses such as grocery stores and retailers would feel the same.

If the benefits claim are not extended quickly, we will see more foreclosures, bankruptcies and in turn more retail job losses. The fear of the recovery unraveling could send the US dollar to fresh lows.

U.S. Congress is struggling to come up with another relief package but the aid they end up providing wont be as generous. The analysts expect them to pay 70% of prior income but average extra payment to unemployed Americans could fall to as low as $200 a week.

2) U.S. GDP Can Be Drop To Double Digits Contraction In Q2

U.S. GDP in Q2 are scheduled for release on this Thursday. Lockdown measures were first implemented at the end of the first quarter and the shutdown in activity caused a 5% contraction in GDP.

In Q2, almost all U.S. states were in full lockdown and the economists expect a -35% contraction in growth. Unfortunately, the data could be much worse as the Atlanta Fed predicts a -52.8% decline.

If the GDP is drop more than 40%, we might sees a fall in equities. Even if the data is better, the dollar could decline versus high beta currencies such as the euro as the market compares the contraction in the US with the expected -12% drop in GDP projected for the Eurozone in the same quarter.

3) Federal Reserve Meeting

The two greatest threats to the US economy are two things the Federal Reserve has no control over, it is the rapid spread of coronavirus in the US and the government’s fiscal response.

A few weeks ago, Chairman Powell warned lawmakers not to become complacent as the US economy remains extraordinarily uncertain. Since then, the outlook worsened, extra unemployment benefits expired and the packages that Congress are discussing could fail to impress.

The analysts expect nothing but ongoing dovishness from the Fed along with a pledge to keep monetary policy accommodative for the foreseeable future.

Last month, the Fed said rates will remain at zero through 2022. How the dollar trades will depend on Powell’s tone. Back in June, he said a second half recovery is likely but with virus cases rising rapidly, his outlook may have dimmed.

The analysts expect the dollar to extend its slide before and after FOMC.

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