The vaccine breakthrough news may have raised hopes that the lights in the quiet and closed Broadway theaters in New York will come back on earlier than expected. There cannot be a business like show business.
But the news for that other great American symbol – the dollar – is darker as the devastation from Covid-19 continues.
The transition to president is underway as Donald Trump clears the way for the process to begin.
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But Janet Yellen, named Treasury Secretary by Joe Biden, faces major challenges as the US recovery appears to be slowing.
Citigroup and other US banks believe that the success of the vaccine trials will fuel the global economy.
But they also argue that since other nations appear to have higher growth potential than America, the dollar could be in the doldrums for five or even ten years.
The predictions come despite an exceptional year in which US tech titans dwarfed Lockdown Wonder stocks, other stocks, and other markets.
Citigroup’s Calvin Tse claims the dollar – the world’s reserve currency – could fall 20 percent over the next year. Others are less pessimistic, but the greenback lacks a cheerleader.
Tse expects it will follow a similar path as it did in the early to mid-2000s.
Then the emerging markets tightened more and the US currency fell about a third. Its decline was only stopped by the 2008 financial crisis. So what’s behind the slump in popularity?
In March the dollar fulfilled its role as a safe haven. It is now nearly 10 percent lower than it was at the height of the pandemic fear.
In March, the DXY dollar index was 102.75. It is now 92.4. Citi and other banks like Goldman and JP Morgan reacted bearishly to the dollar in June in response to rapidly growing budget deficits and expectations that lows could hold into 2023 or beyond.
In March the dollar fulfilled its role as a safe haven. Now its value is nearly 10 percent lower than it was at the height of the pandemic fear
The Federal Reserve, which cut interest rates in March, is still pumping billions into the economy to counter pandemic damage.
Fed Chairman Jerome Powell says that such stimulus tools will only be put away when the time is right, and I don’t think the time is yet or anytime soon.
Giles Coghlan, chief analyst at forex broker HYCM, also expects US rates to stay low. ‘The Fed is aiming for an average inflation rate of 2 percent.
The markets read this as a statement that the bank will not raise interest rates even if inflation starts to rise. ‘Powell often clashed with Trump and his Treasury Secretary Steve Mnuchin, and Biden likes the Fed’s strategy.
But Mnuchin threatens to block funding of the stimulus package for the economy. But if it does, it could be reversed by Yellen – the first woman to lead the Fed – in January.
Trump frequently railed against the strength of the dollar, saying it gave China and Europe a competitive advantage, even though his corporate tax cuts and other measures stimulated the currency.
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Biden’s stance on big business is less lenient and corporations will have to pay higher taxes to fund the $ 2 trillion (£ 1.5 trillion) plan to make America greener.
Adventurous investors seem poised to exit the dollar in favor of emerging markets. Coghlan believes the Chinese yuan, Russian ruble and Turkish lira could benefit from this. Turkey raised interest rates this month.
The yen’s rise shows that Japan, which has bounced back from Covid, is attracting inflows. The fate of gold seems to be linked to the fortune of the dollar.
After a two-year rally, the value of the metal loses its luster in favor of platinum and silver, coveted commodities, when production picks up. Bitcoin, which can be used to counterbalance a falling dollar, has risen rapidly.
Will the pound also be taken down the dollar slide? During the summer, the pound rose from $ 1.25 to $ 1.34 in early September.
Despite the yawning deficit in the UK, it’s now $ 1.32. But the biggest contributor to the pound now is the last-minute outcome of the Brexit talks. A bad result would have a significant disadvantage, but a deal before the deadline is expected to propel the pound to around $ 1.35.
Toscafund, the underdog hedge fund, even believes $ 1.70 is a possibility once Brexit is over.
If predictions for the dollar decline are met, UK investors with large holdings in US technology stocks will see the value of those stocks fall.
However, these companies appear to be continuing to grow, and low interest rates could help valuation of technology stocks.
Many investors may stick with it because savings accounts in the UK and US pay so little.
The Biden administration may dissolve Amazon and Google, but its constituent parts would still be tremendously powerful, reassuring investors as they wait for the dollar to rebound.
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