Waiting for the dollar coin, the digital currency that the Fed is developing, however, guaranteeing that nothing will be done before an OK from the president, continues the strengthening of US cards against the euro. The speech that Jerome Powell will give before the House Financial Services Committee, together with Treasury Secretary Janet Yellen, will probably help confirm the better health of the dollar on European paper today.
From the forecasts released this morning it emerges that the Fed chairman is convinced that the recovery is far from complete and that the central bank will continue to offer the necessary support to the economy for as long as necessary. But Powell will add that "the recovery has moved faster than expected and appears to be strengthening."
Hence the belief that The dollar will continue to appreciate against the single currency, the exact opposite of what happened last year, when the prospect of a sharp increase in US debt had pushed the greenback down by 9%. On the contrary, in 2021 the dollar (1,189) gains 2,60% against the euro as does the Dollar Index (92,10), against a basket of six world currencies.
Of course, i more attractive US bond yields, following the sharp surge in Treasury sell-offs in recent weeks. For example, on the ten-year maturity, the gap between the Treasury Note (1,67%) and the German Bund (-0,31%) is close to 200 basis points. On the thirty-year maturity, it reaches 210 basis points. But, above all, the different state of economic policy on the two sides of the Atlantic plays a part. Europe is still in the midst of the Covid/vaccine mess. Germany, the first European economy, facing an "exponential" increase in infections and a new "much more lethal" variant of Covid-19, has announced an enhanced lockout over the Easter weekend and until April 18. On the contrary, in the USA, after the 1.900 trillion dollar economic stimulus approved last week (and today's announcement of the reopening of cinemas announced yesterday by Cineworld), phase two of the recovery, the most demanding, destined to condition the dynamics of the markets, not only in the USA.
This morning's New York Times anticipates on the front page the news that during the week President Joe Biden will present the real plan to relaunch the stars and stripes economy: others 3 trillion dollars (more than one and a half times the entire Italian GDP) divided into various provisions which will be destined for the development of physical (bridges, roads and interventions on the territory) and virtual infrastructures, with an eye on pursuing the Chinese rivals. But also a strong investment in education, in interventions in favor of welfare, racial integration and education. An ambitious plan that looks back to the precedent of the New Deal of the Thirties and the Big Society of Lindon B. Johnson of the Sixties. An ambitious goal that, on the advice of Janet Yellen, Biden wants to achieve as soon as possible on the wave of consensus that the economic aid package has received from public opinion, including many Republicans. But it is one thing to obtain consensus when you distribute money in rain (1.400 dollars each), another when you have to establish who will pay the bill. And here the difficulty begins.
For the first time since Ronald Reagan, the debate will not be about the tax cut, but rather the increase, albeit gradual and contained, of taxes at the expense of the better off. So far Biden and Janet Yellen have been stingy with details but it is assumed that they will raise corporate taxes from the (lowest) 21 percent level while income taxes will rise from the current 37 to 39,6 percent. But the increase will only affect i taxpayers with a taxable income of at least $400. It is far from obvious that the reform today has the numbers to attract the (necessary) votes of a part of the Republicans, while the democratic left is calling for far more drastic interventions. But Biden does not despair, convinced that the success of the fight against the pandemic and the significant improvement in middle class income guaranteed by the stimuli and the strong anti-inflation dollar will guarantee the necessary support, even that necessary to win the mid-term elections . If he is right, the rain of money that will pour into the US economy will lead to a sharp increase in imports from Europe (at least half a point of GDP). But for now let's be content with the upward push on the dollar.
