Demand for the dollar continues to pick up as optimistic data for the US economy raises the chance that the Fed will adjust its super-soft monetary policy earlier than expected. At the same time, there are rumors that the new US stimulus will be smaller than what Joe Biden initially proposed.
Last Saturday, the US House of Representatives passed Biden's $ 1.9 trillion bailout bill, which includes additional $ 1,400 payments to Americans, increased unemployment benefits and new funding for COVID-19 vaccination and population testing program. During the assembly, 219 people voted for the bill, while 212 voted against it. This ratio is very different from the earlier votings since the previous bills received stronger bipartisan support. Of course, it was no surprise that all Republicans did not support the program, but two Democrats - Jared Golden and Kurt Schrader - also refused the bill.
Nevertheless, the decision will now go to the Senate. However, it will face more serious problems as the Republicans continue to oppose an increase in the minimum wage. This is the reason why Democrats wanted to pass a stimulus plan without a Republican vote.
So, on Saturday, President Joe Biden called on lawmakers to swiftly approve the bill. "It's time to act," he said. "We don't have extra time," he added.
Treasury Secretary Janet Yellen also tweeted that the COVID-19 relief program "guarantees assistance to people affected by the pandemic."
But as noted above, the stumbling block is that Republicans oppose an increase in the minimum wage, change in tax rates for large companies that pay low wages and change in incentives for smaller companies. They also believe that raising the minimum wage to $ 15 an hour does not meet the requirements for a fast-track process for new stimulus. Therefore, another fierce struggle in the Senate is likely to happen this week.
In another note, the $ 600 checks provided in the previous bailout bill made personal income skyrocket this January. The index increased by about 10.0%, which is higher than the expected 9.5%. But people should not be elated by this news because the indicator for February might show a decrease.
Personal spending has also grown rather significantly. This January, it jumped by around 2.4%, after falling by 0.4% a month earlier. Economists had expected the index to rise by 2.5%.
Personal savings also increased, growing by approximately 20.5%. This sharp rise will most likely affect inflation, which the Federal Reserve wanted to level 2.0% or higher. In fact, at the latest press conference, Fed Chairman Jerome Powell said the US central bank will allow inflation to go beyond 2.0% in order to compensate for the past years.
"Our policy will remain the same since inflation is still low and the labor market remains far from maximum employment," he said.
However, indicators show that some prices are overvalued and does not indicate a stable formation of inflationary pressures.
Nevertheless, consumer sentiment still continued to increase, and in February the index was revised upward to 76.8 points. However, even if the COVID-19 pandemic seems to be retreating, many consumers do not expect a sustained economic growth in the near future. Therefore, the expectations index fell to 70.7 this February, while the current conditions index fell to 86.2 points.
As for business environment, the Chicago Business Barometer indicated that business activity in Chicago is recovering, albeit at a slower pace than the previous month. The index increased by 59.5 points in February, after jumping by 63.8 points last January. But even if growth is slower than the previous month, a value above 50 points indicates an increase in business activity.
With regards to the EUR/USD pair, movement remains bearish as sellers continue to work for a drop towards February lows. But if the price returns to the 21st figure and above, the euro will trade in the direction of 1.2140.
A number of reports are also scheduled to be released today, and they will probably influence trading volatility and market sentiment. For example, a better-than-expected inflation data from Italy and Germany could lead to a rise in EUR/USD. Then, in the afternoon, representatives from the Federal Reserve System and European Central Bank will speak, but it will most likely provide support to the US dollar.
