Business The euro up against the dollar, the blockage continues...

The euro up against the dollar, the blockage continues in the United States

Around 9 p.m., the euro gained 0.16% against the greenback, to 1.1803 dollars.

The euro continued its progression Thursday against a dollar weakened by the political blockage in the United States on a new aid plan for the Americans.

Around 7:00 p.m. GMT (9:00 p.m. in Paris), the euro gained 0.16% against the greenback, at $ 1.1803.

“The coronavirus continues to cast a shadow over the prospects for the recovery of the US economy and the partisan spirit preventing a deal between Democrats and Republicans is not helping,” said Ricardo Evangelista, analyst at ActivTrades.

“Without a stimulus package, the US economy is unlikely to recover quickly and this is the main reason for the recent weakness in the dollar,” he explained.

The discussions stumble in particular on the total envelope: the Democrats want to go up to 3 trillion dollars while the Republicans want to limit it to 1000 billion. The Democrats had proposed a $ 2,000 billion compromise, refused by the White House.

The greenback wiped out some of its losses after data was released showing less than a million Americans were newly registered as unemployed last week, the first since late March.

“Although this is a step in the right direction, the general level of requests for allowances remains historically high, which underlines the urgency for Washington to find a new agreement on the fiscal stimulus”, notes Joe Manimbo of Western Union.

On Wednesday, the dollar also saw its decline deepen “after data on US inflation showed that prices rose much more than expected in July,” said Thu Lan Nguyen, analyst for Commerzbank.

Consumer prices in the United States thus rose 0.6% in July, as in June, while analysts were expecting + 0.3%.

In theory, higher than expected inflation benefits the currency concerned because it increases the chances of key rate hikes.

But as Thu Lan Nguyen points out, in the current context, with the pandemic, monetary policy is no longer really correlated with inflation and should not normalize for a while.

“However, if inflation increases, it means that the real yields (that is to say by subtracting the rise in prices, note) of American bonds will fall, which is anything but positive for the dollar”, she explained.

Generally speaking, the value of a currency is correlated with the evolution of bond yields, in the sense that the latter reflect the market opinion on the economic outlook for the short and long term.

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