As of 3:24 pm AST, foreign exchange rate movement in a wait and see pandemic relief environment of the US Senate

PairsFederal Reserve as of 23 December 2020OANDA as of 23 December 2020OANDA as of 29 December 2020
GBP/USD1.35101.34491.35070
USD/CAD1.28411.28721.28431
USD/CNH6.54006.53236.52721
USD/DKK6.09896.10316.08792
EUR/USD1.21941.21851.22140
USD/INR73.770073.731673.4425
USD/MXN20.080020.087819.9413
USD/JPY103.5200103.50103.64
USD/NOK8.63078.68868.63352
USD/SEK8.28418.30368.26356
USD/CHF.8882.8886.88947
Source: OANDA

Legal/Political Events Impacting Foreign Exchange

US Senate ponder Covid relief bill during rare holiday time in Washington

As of this writing, the U.S. Senate is in session debating the COVID-19 pandemic relief bill. One core issue: whether $600 in taxpayer aid should be increased to $2,000. Speaking on the Senate floor, Senator Dick Durbin, Democrat of Illinois, reiterated that the additional aid is needed immediately and that these funds won’t be put away for a rainy day but will be injected immediately into jump starting the economy. As of 3:30 pm AST, the Senate was still making its quorum call and waiting for additional senators to speak. President Donald Trump threw a wrench into the relief discussions when he expressed support for $2,000 per eligible taxpayer.

Two Republicans in the Senate, brought additional attention to themselves by joining the President in support of increasing monetary support. Senator Kelly Loeffler and Senator David Perdue, both of Georgia, are facing tough run-off elections scheduled for 5 January 2021.

Election night saw increase in internet usage

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by IIA

NOVEMBER 11, 2020

On election night, intense interest throughout the country in the results of the 2020 election drove a significant increase in broadband usage. During prime time on November 3 (5pm to 8pm CT), broadband management and analytics company OpenVault estimated a 7% increase in broadband usage compared to previous Tuesdays. Usage was up even more for cord cutters, where OpenVault reported an increase of 16.4% from previous weeks.

Are currency traders willing to pay more for the US dollar in face of US election? ….

Capital abhors a vacuum and even with the U.S. general election three days away, capital will try to cut through the campaign noise and seek out a return. From a political and legal event perspective, traders should assess the strength of legal challenges to voting, especially challenges raised by the Republican Party.

Republicans and Democrats have been building their legal teams for over a year and both will be on the lookout for voting irregularities including evidence of voter suppression or voter fraud. Republicans are expected to challenge authenticity of mail-in ballots and the deadlines for when these ballots are expected to be received. Traders should be particularly mindful of the intensity of Republican challenges given that incumbent president Donald J. Trump is running behind Democratic nominee Joseph R. Biden in national polls.

Real Clear Politics has Mr Biden polling at 51.3% versus Mr Trumps 43.5% during the period 21 October to 30 October 2020. PredictIt is pricing a .65 probability of a Democratic takeover of the White House versus a probability of .40 that the Republican Party maintains control of the Oval Office.

But the foreign exchange markets appear to see the value of the US dollar priced in various currencies increasing as we get closer to the election.

Country/Currency24 October25 October26 October27 October28 October29 October30 October31 October
Mexico (MXN)20.921020.840820.847620.966720.927121.169421.310121.2962
Canada (CAD)1.313611.311911.312201.318291.317761.325551.332211.33172
Japan (Yen)104.72104.66104.67104.87104.61104.30104.44104.49
China (Yuan)6.677336.676806.676806.699166.705156.716726.711576.68746
Euro.84496.84274.84288.84578.84622.85056.85398.85694
Eastern Caribbean Dollar2.702.702.702.702.702.702.702.70
Brazil (BRL)5.601805.618405.618185.621155.644745.722425.758215.76506
Price of US Dollar in selected exchange rates 24 October to 31 October 2020

With the exception of Japan and the Eastern Caribbean, the prices in foreign currency offered for a US Dollar have been inching up over the last week. Traders in the above nations reflect a number of major US trading partners and the increase in the amount traders in these countries are willing to offer a seller of the US dollar tells me that at a minimum, they have positive expectation in the potential for growth in the US and that public policies offered by Mr Biden might not deter expected growth or value of the dollar.

Again, traders should be on the lookout for any legal, legislative, or regulatory actions that thwart the ability of Mr Biden to garner enough votes to win the Electoral College.

Additional source: OANDA.com

High points from Federal Reserve vice-chair Richard Clarida show how Biden will play economy in 2023 …

News and Analysis

Yesterday, vice-chairman of the Board of Governors of the Federal Reserve, Richard Clarida, reiterated the Federal Reserve’s call for continued stimulus spending to reboot an American economy severely slowed down by a government-ordered commercial lockdown resulting from efforts to stem the virality of Covid-19. In describing combined fiscal and monetary efforts to reboot the economy, Mr Clarida shared the following:

“Although spending on many services continues to lag, the rebound in the GDP data has been broad based across indicators of goods consumption, housing, and investment. These components of aggregate demand have benefited from robust fiscal support—including the Paycheck Protection Program and expanded unemployment benefits—as well as low interest rates and efforts by the Federal Reserve to sustain the flow of credit to households and firms. In the labor market, about half of the 22 million jobs that were lost in the spring have been restored, and the unemployment rate has fallen since April by nearly 7 percentage points to 7.9 percent as of September.”

Mr Clarida challenged naysayers who had argued that interest rate cuts, asset purchases, and loan programs would not facilitate growth in gross domestic product by reminding them that the unemployment rate has fallen almost seven percentage points since April and that the labor market has replaced almost half of the 22 million jobs lost last spring. But even at this rate of progress, Mr Clarida made it clear that it may take another year before the American economy gets back to its previous 2019 peak.

The Federal Reserve’s decision to modify its inflation target policy, where inflation may be allowed to run moderately over two percent and federal funds rates remaining relatively unchanged (0 to .25%) over the next three years, is expected to result in an unemployment rate of four percent and inflation returning to two percent.

Assuming the polls hold and Joe Biden is able to take over the Oval Office on 20 January 2021, a first glance expectation is that Mr Biden will pursue spending bills that, in addition to increases in transfer payments, will increase pools of public capital available for access by private firms or private-public partnerships. Mr Biden’s “Build Back Better” initiative appears, in theory, to call for creating these opportunities.

One potential area for increasing pools of public capital is the financing of energy infrastructure projects. According to language from his campaign platform:

“Biden will immediately invest in engines of sustainable job creation – new industries and re-invigorated regional economies spurred by innovation from our national labs and universities; commercialized into new and better products that can be manufactured and built by American workers; and put together using feedstocks, materials, and parts supplied by small businesses, family farms, and job creators all across our country.”

Mr Biden may not have much re-creating the wheel to do. The United States Department of Energy has a number of financing programs in place that can be used to finance these endeavors. For example, the federal government offers what it calls a “Small Business Toolbox” that helps small businesses, no matter their experience level with government contracting, navigate the requirements for financing.

Mr Biden will have to finance these procurement programs so that these programs can turn around and finance the private companies ready to carry out the federal government’s energy infrastructure agenda. If the Federal Reserve remains on its modified inflation glide path, Mr Biden will have three fiscal years of low interest rates to borrow the funds necessary for his energy infrastructure plans and create the collateral employment of labor that may come along with it.

Mr Biden is likely praying that the “blue wave” narrative, where the Democratic Party sweeps the White House and the Congress, comes to fruition in November. With both chambers of Congress under Democratic control, there may be greater ease at delivering the necessary government financing for his initiatives. If he learned anything from the Obama administration’s first term in office, it is the need to move fast during his first two years to secure the necessary spending bills.

If Mr Biden does not get the “blue wave” then he will have to apply his ‘across the aisle” skills to get Republican senators to buy into his infrastructure plan.

Meanwhile, America is going through a structural employment shift, one that many wage earners will not recover from. Shrinking tax bases due to lower labor force participation and increased tax bills for those who are still working but making less money doth not make a certain second term.