- The US dollar index is in an unhinged plunge as investors worry about US stimulus.
- In a statement, Mitch McConnel rejected a bipartisan stimulus deal.
- The index is also falling because of the significant stimulus packages in Europe and Germany.
The US dollar index (DXY) is hovering close to its two-and-a-half-year low as traders worry about stimulus and the overall American economy. The index is trading at $90.6, which is the lowest it has been since April 2018.
US stimulus deal fades
The US dollar is falling partly because of the fading optimism about a stimulus deal in the United States. In a statement yesterday, Mitch McConnel’s office said that the senate would not pass a $908 billion stimulus that has been supported by a bipartisan team of legislators. Instead, the senate leader has continued to support a smaller package that is unlikely to pass in the two houses.
Are you looking for fast-news, hot-tips and market analysis?
Sign-up for the Invezz newsletter, today.
The stimulus deadlock comes at a vital time for the American economy. Last week, data showed that the country added the least jobs in the past few months. And yesterday, official numbers showed that more than 853,000 Americans filed for initial jobless claims in the previous week. That was the first time since October that the number has moved above 800k.
In total, these numbers mean that more than 12 million Americans are out of work. Without stimulus, these people will lose their unemployment benefits.
The dollar index is also falling because of the relatively stronger euro. The euro, which is the biggest constituent of the index, rose to a two-and-a-half year high. That’s because of the positive interest rate decision by the European Central Bank and the agreement among leaders about the budget. This means that the countries will have access to trillions of euros worth of stimulus.
Similarly, in Japan, the government has launched another $700 billion stimulus as it tries to accelerate its growth. And in Canada, the government announced a large expansionary budget that will expand its deficit to the highest level. It hopes that the new spending will boost the economy.
Surprisingly, the British pound has also held steady against the dollar even as the possibility of a no-deal Brexit rose. In a statement yesterday, Boris Johnson warned the public and businesses to prepare for no deal.
Dollar index technical outlook
The dollar index is trading at $90.65, which is its lowest level in more than two years. It is also just 2% above its 2014 lows. It has also moved below the 50% Fibonacci retracement level. Also, it is along the lower line of the Bollinger Bands, which is a sign that bearish forex investorsare still in control.
The stochastic oscillator has also moved below the oversold line. Therefore, in the near term, the index will continue falling as bears target moves below$90.