girl holding dollar bills

Stimulus In Limbo, Dollar Weakness In 2021

It seemed like most Americans would have received a $600 stimulus check just in time for Christmas, but now all of that seems bogged down to uncertainty. 

On Tuesday, President Trump criticized the $2.3 trillion coronavirus aid and spending package. So far, it looks as though he is adamant in dragging negotiations past the unemployment benefits lapse on Saturday, threatening a possible government shutdown next week.

Trump wants a slightly bigger check at $2,000 and he has made this clear on Twitter, "Why would politicians not want to give people $2000, rather than only $600? It wasn't their fault, it was China?"

Now, there is a real question about whether Trump will actually sign the bill or veto it altogether. And this caused the markets to react with some mild selling pressure on the dollar. 

The dollar index, the leading benchmark that tracks the dollar's value against six other g10 currencies, turned lower following a Tuesday rally fueled by investors flocking to the greenback's safety as the news of the coronavirus variant broke out. 

On the chart, the dollar seems to be on course to trade lower and may even challenge the S2 Pivot Point at 89.76 in the coming week. The Stochastic is there to support this as it now offers its own bearish signal.

Is a weaker dollar expected in the year ahead?

What has partly driven dollar weakness is the prospects of a global recovery from the economic toll that the coronavirus pandemic has caused. However, there are still a lot of expectations for the dollar to remain sluggish heading into next year.

Julio Callegari, the lead portfolio manager for Asia rates and FX at JPMorgan, told Bloomberg that the bank maintains its bearish bias for the dollar in 2021. Callegari named China's growth (which could boost the demand for commodities), less friction between the U.S. and China in a Biden transition, and the view of long-term low rates as key elements for a weaker dollar in the new year.

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