The US dollar is weakening against its G10 currency counterparts on Tuesday as mixed economic data and the Federal Reserve’s latest stimulus measures drive the greenback’s performance. Despite a tepid drop in recent sessions, the dollar continues to be one of the few top-performing currencies in this market due to its appealing safe-haven status.
On Tuesday, the Fed announced changes to its $2.3 trillion municipal-bond program that would see the central bank acquire state and municipal debt to shore up the economy. The purpose of the measure is to ensure jurisdictions can concentrate on mitigating the crisis instead of worrying about a credit crunch. The Fed initially allowed ten cities and 16 counties with populations of one million and two million, respectively, to participate.
However, due to external pressure about leaving many major urban centers with large black populations out of the program, the Fed revised the policy. Moving forward, the central bank will open the program to cities with 250,000 residents and counties with 500,000 people. Also, the Fed will provide three-year loans instead of the two-year loans it previously listed.
With the changes, about 80 cities and more than 100 counties are eligible, including Atlanta, Detroit, Miami, Minneapolis, New Jersey, and New Orleans.
But critics warn that the Fed’s exorbitant stimulus will not do much for states and cities grappling with immense budget holes, especially if they had already been faced with falling revenues and rising deficits in the pre-pandemic economy. Experts warn that the drop in revenues from the coronavirus pandemic will only cause additional lending and interest costs.
As the Eccles Building engages in unlimited quantitative easing, it is projected that the Fed’s balance sheet will balloon to $10 trillion by early next year. When you factor in the federal government’s multi-trillion-dollar fiscal stimulus efforts, there will inevitably be a lot of pressure on budgets and balance sheets. The whatever-it-takes approach will consequently weigh on the greenback.
On the data front, wholesale inventories fell 1% in March, down from the 0.6% decline in February. But the big numbers came in housing: The S&P/Case-Shiller Home Price Index surged at an annualized rate of 3.5% in February, which was before the COVID-19 lockdown. It will be interesting to see if housing prices continue the upward trend in March or if home values collapsed.
Meanwhile, the Fed Bank of Richmond’s manufacturing index came in at -53 this month, down from two in March. The Conference Board’s Consumer Confidence reading plummeted from 118.8 in March to 86.9 in April.
The US Dollar Index, which measures the greenback against a basket of currencies, fell 0.22% to 99.82, from an opening of 100.06.
The USD/CAD currency pair declined 0.31% to 1.3993, from an opening of 1.4035, at 15:50 GMT on Tuesday. The EUR/USD rose 0.12% to 1.0843, from an opening of 1.0829.