Home Forex News The US Dollar Strengthens As The Surge In COVID-19 cases Weights On...

The US Dollar Strengthens As The Surge In COVID-19 cases Weights On Markets And Investor Sentiment

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  • US dollar firms on dampened sentiment
  • June numbers show recovery in consumer spending
  • Democrats want $1 trillion stimulus package for state and local governments

The US dollar firmed on Thursday as boiling tension between the US and China, and the surge in new COVID-19 cases weighed on investor sentiment and equity markets.

US economy shows recovery signs in June

The US economy showed signs of recovery in June due to the increase in consumer spending, but the second wave of coronavirus cases has slowed activity. Economists estimate that retail sales grew 5.2% in June, but the outbreak of new cases in the western and southern US slowed activity at the end of the month. Surprisingly consumer spending was very strong at around 17.7%, including automobiles. The second wave of cases could likely hinder spending in July and August in impacted states as consumers remain at home.

Equally, the Federal Reserve indicated that industrial output surged by almost 5.4% In June after just a 1.4% rise in May. Economists surveyed by Bloomberg expected a median growth of 4.3%. Factory output rose 7.2%, which is the largest gain since 1946, with capital utilization growing to 68.6% from 65.1% in May. Also, the Fed indicated that utility output grew 4.2%, but mining dipped 2.9% in a fifth consecutive month. Gas and oil drilling dropped 18%, and it is now 70% year to date as the oil prices slump resulted in cutbacks on oil exploration.

Congress should bail local and state governments

The most important thing Congress can do for now to fix the economy, according to Ben Bernanke, is to offer help to local and state governments. Bernanke indicated that the decline in tax revenue from income tax and sales tax when businesses were shuttered in many states will result in budget deficits. This will imply a reduction in the provision of essential services in the states and more job losses.

Already Democrats are advocating for a $1 trillion package in federal help to local and state governments. Such a package is yet to receive support from Republicans in Congress.

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