US: Additional stimulus in doubt, USD to further rebound – MUFG

The US Congress completed the passage of the $900 stimulus bill but risk appetite may be further tested with doubts over stimulus. The dollar is on the back foot but could rebound as consumer confidence also receives a hit, economists at MUFG Bank inform.

Key quotes

“The USD900 B fiscal stimulus package agreed on Monday has failed to reignite the optimism and is now under a cloud of fresh doubt after President Trump tweeted a video last night calling the package “a disgrace” with unnecessary spending included. 

“On Tuesday, consumer confidence fell from a revised 92.9 in November to 88.6 in December, well below the 97.0 consensus. This drop was all down to the Present Conditions Index which fell by 15.6ppts, the largest drop since the COVID-related plunge in April. Initial claims are heading higher and the worsening jobs market is clearly hitting consumer confidence.”

“Trump’s wish for larger stimulus for individuals may also be helping provide support for the markets although the Republicans in the Senate are very unlikely to agree to the increase Trump called for. So the market’s indifference could quickly begin to change and that would likely result in a correction lower in risk and some further rebound for the US dollar.”

“The stimulus legislation also incorporates government funding and hence if not signed by 28th December, a government shutdown would follow. This renewed uncertainty adds to near-term risks which will provide some added support for the dollar. Although we suspect the deal will be signed. It surely would not be good for the Republicans in the Senate run-off elections to scupper this deal now.”