The US dollar extended its slide after a dovish Fed statement and the extension of its dollar liquidity swap lines and repo program. The ‘Fed put’ remains intact since they do not have a handle with the course of the virus and whether lawmakers will not deliver enough fiscal stimulus. Wall Street is liking the Fed’s renewed pledge for stimulus, but stocks will likely struggle for further gains until Congress agrees upon a stimulus package and Thursday’s mega-tech earnings results.
Powell’s press conference saw risky assets give back some gains after his comments that fiscal policy can address things that the Fed can’t. He acknowledged that we need to hope for the best on a vaccine but need to be prepared for the worst. Powell did make sure he was clear that we’re not even thinking about thinking about raising rates. The Fed can’t save the economy alone and while they are doing their part, a lot of the recovery will depend on Congress and vaccine phase 3 trial results.
FX
The dollar is waving the white flag after the Fed reiterated, they will maintain ultra-low interest rates and extend asset purchases. The dollar initially resumed its slide after the announcement of the extension of its dollar liquidity swap lines and repo program. This really wasn’t big news since the Fed was expected to keep all programs and facilities going strong through year end.
The dollar’s days seem numbered, because the stimulus trade seems it will last forever as large parts of the economy are not likely to bounce back anytime soon.
Gold
Gold prices initially surged after the Fed’s renewed pledge for stimulus. Gold should continue to rise higher after the Fed’s promise to keep the stimulus coming. Gold fell a couple dollars shy of the $2000 level and traders locked-in profits after Powell’s comment that fiscal policy is essential. The gold stimulus trade remains intact but could see some disappointment if Republicans and Democrats don’t have a breakthrough with the coronavirus relief bill over the next few days. The Fed’s backstop is not going away, but if Congress botches the size and timing of the coronavirus relief bill, gold could consolidate before breaking beyond the $2000 level.
Oil
Crude prices held onto gains after a bigger-than-expected crude draw and after the Fed renewed their stimulus pledge. The EIA crude oil inventory showed gasoline demand is steady despite being in the middle of peak driving season. Exports improved to the highest level since May, but that may be attributed rushing out exports before the latest weather activity in Gulf of Mexico. Oil remains in a consolidation phase and could be stuck in the low-$40s until we see stronger shifts in the demand outlook.