Currencies: US debt raises questions, dollar drops slightly

  •   11/05/2020 - 10h54
  •   DEHOUI Lionel

From Monday to Friday, the European stock exchanges as well as the Asian ones through Wall Street have experienced several evolutions. Sometimes it is a question of a drop in one index or another. The results of individual companies are partly responsible for these variations. But they cannot be solely responsible for the values recorded, as their own results depend on the economic state of the countries in which they are located. However, we must not forget the atmosphere that currently prevails in almost all countries of the world. The coronavirus health crisis is bringing down the world's largest economies like the United States, China or France. For example, the dollar is slightly down this weekend and the US debt raises questions.

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Currencies: US debt raises questions, dollar drops slightly

Exchange rates

This Friday, the most important thing to remember about the variations of the different currencies is on the side of the American currency: the Dollar. The latter has suffered a slight weakening in trade against the Euro. Against the Pound Sterling, the Dollar's weakening is more pronounced this Friday. Indeed, the Pound Sterling gained more than +0.55% to 1.2425 against the Dollar. It makes a gain of +0.4% in trade against the Euro.

Even though the Pound Sterling is showing through its value as the strongest currency, the Dollar continues to hold up well. One shouldn't lose sight of the unemployment figures released this Friday. Values that are not favorable to the various American economic markets. In addition, the latest estimates given by the FED/Atlanta must be weighed in the balance. The latter anticipates a US GDP leaving -17.6% to -36.9% for the second quarter.

Information: In the second quarter, the -25% decline was judged to be severe. However, the Atlanta FED is forecasting figures closer to the depression. Thus, it specifies that these will be far from the Wall Street game for a potential recessionary shock.


The U.S. Dollar and the Canadian Dollar

It looked like everything was already set for the U.S. Dollar. But it is necessary to inquire about the value of this one against other important currencies such as the Yen. At this level, it should be noted that the greenback recorded a gain (from +0.3% to 106.6) against the Yen. Speaking of the Yen (the Japanese currency), note that household consumption in Japan fell by -6% during the month of April.

The Canadian dollar is also attracting attention with its value this weekend. Among the currencies, the Canadian dollar thus recovered by about +0.4% to 1.3920. It should be remembered that on March 18 and 19, the famous "loonie" reached a low of 1.466 before the U.S. dollar. Note that in Canada, the unemployment rate is 13%, below the U.S. unemployment rate in April.


The big question

The most important thing over the next few weeks is well known by analysts. There will be talk of keeping an eye on the Fed's announcements regarding the introduction of negative rates. Tokyo had to resort to -0.1% to borrow money while monetizing its debt at 100%. Switzerland paid -0.75 % to get into debt.

The big question is whether creditors will agree to sponsor the United States. However, US debt could increase by between +30% and +40% for the current year.