An American World

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The macro point

An American WorldMacro HighlightLast week, the U.S. Congress approved the Biden administration's stimulus plan, reaching a record amount of $1.9 trillion. Among the key measures, $1,400 checks will be sent to American households starting this month. Due to the astronomical sums laid out by the Trump and Biden administrations over recent months, the rebound of the U.S. economy is expected to be historic in 2021. The OECD, which updated its growth forecasts a few days ago, expects U.S. growth to peak at 6.5% in 2021—one of the highest performances among developed economies. In contrast, due to insufficient fiscal stimulus and delays in the vaccination campaign, eurozone growth is expected to be only 2.7% this year—far too low to erase the scars of the crisis. As was the case during the financial crisis of 2007-2008, there is a very clear growth gap between the two sides of the Atlantic, which could also impact exchange rate developments in the medium term. We will come back to this shortly. Meanwhile, the strong U.S. fiscal stimulus coupled with a massive asset purchase program led by the Federal Reserve could encourage other countries to consider stronger support measures. It is known that in an economic world dominated by the U.S. dollar, the fiscal and monetary policy decisions of the United States have an impact on the global economy. It is therefore not unlikely that some countries may decide to increase their support through public spending or monetary policy—there is particularly speculation that this might be the case for the United Kingdom. However, it is too early to know if this will happen soon. Nevertheless, it should be noted that the ECB was forced to slightly adjust its discourse last week due to the impact of the fiscal stimulus on inflation expectations and bond market rate developments. It was compelled to announce an acceleration of asset purchases from the next quarter in hopes of containing investor concerns about consumer price developments. Despite all the comments about a world now dominated by China, recent weeks blatantly show that the global economy is still under the hegemony of the United States.

Technical point

Interestingly, this American hegemony is reflected in the currency market by a return of the strong dollar. After the 2007-2008 crisis, it took nearly four years for the U.S. dollar to significantly strengthen against other currencies. This time, it only took a few months. More fiscal and monetary stimulus induces a marked rise in the greenback, simply reflecting hopes for a strong economic recovery across the Atlantic. Thus, the dollar index, which plummeted with the announcement of the global lockdown in March 2020, is now close to the level of 92 — just a few points from its yearly high. The strengthening of the greenback is also noticeable against the euro in recent months: the flagship currency pair has lost 2.4% since January. The euro's decline may persist if the growth disparity between the two sides of the Atlantic is confirmed. The next major level to watch is the weekly support at 1.1832. The supports and resistances displayed below indicate the respective lows and highs within which prices should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1752	1.1832	1.2052	1.2193
EUR/GBP	0.8458	0.8500	0.8667	0.8723
EUR/CHF	1.0650	1.0856	1.1179	1.1269
EUR/CAD	1.4523	1.4848	1.5287	1.5499
EUR/JPY	127.52	128.31	131.89	133.62

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Announcements to follow

This week, several central banks are scheduled to meet. We do not expect any action from the Bank of England, which should maintain its asset purchase program as is. The swift vaccination campaign across the Channel allows for hopes of a strong economic rebound towards the end of the second quarter. Therefore, further monetary support does not make sense at this stage. Finally, attention will focus on the Federal Reserve, which is set to meet on March 17. We also expect a monetary status quo, but any comments regarding the evolution of inflation will be closely monitored. Note that the BLS (equivalent to INSEE in the United States) considers the recent surge in inflation to be temporary. The Federal Reserve shares this view, which is why it should refrain from modifying its setup implemented to address the crisis. Below, you will find the publications and events that should have a major impact on currency trends.

DAY	TIME	INDICATOR	EXPECTATION?
16/03	11:00	ZEW Economic Sentiment Index (March)	The economists' consensus expects a significant decline, to 59.6 against 71.2 previously.
17/03	19:00	Central Bank Meeting	No change expected in monetary policy. However, any comment regarding inflation evolution will be watched.
18/03	13:00	Central Bank Meeting	Maintaining the key rate at a historically low level of 0.10%.
	13:30	Philadelphia Fed Manufacturing Index (March)	Previous figure at 23.1.

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