Dollar Slips, U.S. Stocks Underperform after White House Spits Dummy Over 'Stimulus Bill' Gremlins
- Written by: James Skinner
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The Dollar slipped widely on Wednesday and U.S. stock market futures underperformed their European counterparts after President Donald Trump threw curveball at investors when implicitly threatening a so-called pocket veto an eagerly anticipated spending bill.
Washington's belated and much-reduced fiscal package was at long last approved by Congress on Sunday, creating scope for more than $900bn of spending that was intended to provide financial relief to American households, companies, states' apparatus and federal agencies.
The bill is the result of a months-long process of horse trading between politically as well as ideologically-motivated lawmakers in Washington, who allowed funding to run out as the bipartisan CARES Act of March 2020 expired at the end of July. Negotiations has drawn on for months before Sunday even as a third wave of coronavirus infections crystalised into America's largest yet which, since November's election, has seen cities and states reimposing 'lockdown' or otherwise tightening other restrictions on activity.
— Donald J. Trump (@realDonaldTrump) December 23, 2020
All that remained was for President Trump to put his signature to the bill for monies to be made available over the coming week or so, although gremlins contained inside of the proposed legislation saw the White House throw a curveball at investors last night. President Trump has demanded that Congress take back the bill and increase its provision for households from $600 per week to $2,000 and remove a number of unrelated items that it provides for.
Lawmakers voted on the 5,000 page bill without having had time to read it.
"President Trump must sign the 2021 spending bill by midnight 28 December to avoid a partial government shutdown," says Elias Haddad, a senior strategist at Commonwealth Bank of Australia. "GBP is up against USD and EUR on optimism a trade deal can be sealed ahead of Christmas."
Above: U.S. Dollar performance against major currencies on Wednesday. Source: Pound Sterling Live.
Without Congressional action the spectre of a weeks-long government shutdown looms large over the early New Year, while the world's largest economy will face further headwinds from the impact that a combination of coronavirus closures and absent financial relief could have on household spending; the foremost pillar of that and other economies.
"The upshot is that a decision not to sign the bill would then be a pocket veto and Congress does not have the opportunity to override. This would mean that the much-needed stimulus checks won’t go out in the days after Christmas," says Jane Foley, a senior FX strategist at Rabobank. "So, is there going to be Brexit deal? We still think there is one to be done here, as it is in the best interests of both parties in these negotiations. In fact, if you forget about all the self-assigned deadlines, you would even be inclined to think that the entire process went according to script."
Above: Selected global markets. Price quotes and performance statistics over various timeframes. Source: Netdania Markets.
U.S. stock futures underperformed cash markets in Europe in the wake of this curveball and the Dollar declined against all major currencies except the Swiss Franc and Euro, although events in Europe itself were also garnering the attention of investors who were optimistic once again Wednesday that a Brexit trade deal could soon be agreed. Pound Sterling was in turn higher against most of its counterparts, but is now nearing another speedbump in the road.
"An agreement has been reached to test truck drivers at the UK border before being allowed travel into France with the UK government bringing in the army to speed up the process of testing. Only truck drivers and French and EU citizens or residents who can show a negative COVID test result will be allowed to enter France," says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG. "All of this will be manageable as long as a no-deal Brexit doesn’t emerge to reinforce this temporary border friction...We still would expect to see GBP/USD drop to the mid-1.2000’s on a no-deal, and quite quickly if no contingency plan was agreed." 
Above: Dollar Index shown at daily intervals alongside Pound-to-Dollar rate (orange line).
