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USD : May Rise on Possibility of Rise on Covid-19 Cases

(Tue, 12 May 2020). The US Dollar may rise on risk aversion catalyzed by unexpectedly-gloomy commentary from Fed presidents James Bullard (St. Louis), Neil Kashkari (Minneapolis) and Patrick Harker (Philadelphia). The topics are broadly overlapping, with the primary ones being the economic outlook, the current state of affairs during the coronavirus, and its impact so far. It appears officials are taking a “past, present and future” form of analysis.

Mr. Bullard has warned that the unemployment rate could hit 20 percent or higher in 2020 and warned of a “depression scenario” if the shutdown policy is prolonged. However, officials also have to balance keeping a low infection rate and addressing the economic necessity of returning to normal. For this, Mr. Kashkari has said that a “targeted reopening” will be needed.

However, he warned that on the job front “the worst is yet to come”. Last week’s employment statisticscertainly underscored the severity of the situation. Mr. Harker echoed a similar outlook, warning that the economy will likely continue to underperform until the coronavirus is under control.

There were some questions about the use of negative interest rates, but it appears official favor using other unconventional tools. The irony, of course, is these unorthodox policy measures – like quantitative easing (QE) – are becoming increasingly mainstream.

 

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