US: Stimulus negotiations move forward, USD to weaken by year-end – MUFG

The risk sentiment in the financial markets this morning is positive in part due to the signs of progress on a US fiscal stimulus package as Senate Majority Leader Mitch McConnell, a Republican, seems ready to agree on a stimulus bill worth around $900 billion. Derek Halpenny, Head of Research, Global Markets EMEA & International Securities at MUFG Bank, expects the US dollar to depreciate by year-end due to the stimulus and larger FOMC’s bond purchases.

Key quotes

“US Treasury Secretary Steve Mnuchin presented a new plan to Nancy Pelosi and Chuck Schumer. The USD916 B plan includes state and local government aid and liability protection for businesses – the two opposing issues that have blocked progress.” 

“While the new plan is a positive development, the Democrats still appear more supportive of the bi-partisan USD908 B plan, given the Democrats believe it has the best hope of progress through Congress.” 

“A plan confirmed just ahead of the FOMC on December 16 would be intriguing and potentially set the markets up for a double-whammy of fiscal and monetary stimulus combined. The FOMC will be under pressure to act given the escalation of COVID-19 and the restrictions that go with it. A confirmed stimulus plan and the FOMC announcing an increase in purchases of longer-dated UST bonds would be a recipe for the US dollar to weaken into the end of the year.”