The anarchy that emerged on the streets of Washington, the pandemonium outside the Capitol building, and its seizure, apparently, were taken very indifferently by the financial markets. And this despite the fact that this kind of news usually significantly destroys the largest indices. However, the Dow Jones Industrial Average showed an amazing result - it broke through the 31,000 point mark, that is, it reached a new historical high. The broader S&P 500 index also traded in the green zone at the end of the trading session. At the same time, traditionally, protective assets were not in demand.
Investors have no doubt that Joe Biden will become the president of the United States. Many analysts believe that the domestic political turmoil will not significantly affect the value of major assets, including the dollar. So, after a fairly long fall, the dollar index finally began to rebound. At the time of writing this article, USDX quotes were located at the level of 90.43
Some analysts predict that in the next month, this indicator may well strengthen at the level of 91.5 points.
Most important for the currency market is the fact that Democrats now hold the majority in the US Senate. It is now becoming apparent that all initiatives by the Democratic Administration are free of any restrictions from the US Parliament. Take, for example, the economic support program, on which the government previously planned to spend no more than $1 trillion. Under the current conditions, under the supremacy of the Democrats, this amount is likely to be more ambitious and could reach 2 or even 4 trillion. Such support measures will undoubtedly have a beneficial effect on all asset classes. Only the US dollar will suffer in this case.
The provision of such large-scale assistance implies a number of conditions: first, a significant increase in the national debt, second, the preservation of a stimulating monetary policy, and third, the preservation of ultra-low interest rates. All this will in no way support the dollar against major currencies.
If the Democrats implement their plans to increase spending, then the US dollar will not be saved.
Biden's nomination of former Fed Chair Janet Yellen, who has a weakness for ultra-light rates and is likely to continue a soft credit policy, adds to the dollar's pessimism. As soon as the new administration begins to implement new programs of economic support, the US regulator will immediately begin to further ease the already soft monetary policy.
Such a policy of the Fed will inevitably bring down the dollar, and further down the chain will revive increased demand for gold, that is, for an asset that is traditionally considered by investors as a protection against inflation and dollar depreciation. Experts believe that during the coming year, the US currency may fall to $1.3 per euro, and the price of gold will again return above the level of $2,000 per troy ounce.
The weakening of the dollar, among other things, will be good news for a number of other countries. Thus, the recovery of the US economy and the collapsing dollar will have a positive impact on the closest US trading partners, namely China, Canada, Mexico, Japan, and Germany.