Last Weekend President Joe Biden released his first annual budget - a $6 trillion spending plan that includes new social programmes, investment in the fight against climate change and steep tax increases for wealthier Americans. Should it pass congress, national debt is predicted to reach 117% of GDP by 2031, surpassing levels seen during World War Two, despite at least $3tn in proposed tax increases on corporations, capital gains and the top income tax bracket.
Any substantial spending or printing of money is considered bearish for a currency in the long term as product prices rise and become less competitive internationally, the currency becoming less sought after. Tax increases will decrease the incentive for foreign investment in the US and may result in individuals and some corporations moving their operations oversees. However there could be some short term optimism for the dollar in the short run as investors bet on future interest rate rises to slow spending. Keep an eye on releases such as CPI and Fed Chair Powell's statements for hints of interest rate hikes.
Gold is seen as a safe haven and is often referred to as a hedge against inflation, as unlike government regulated currencies, you can't print more gold so naturally over time, it gains value. This is why gold is likely to accelerate in its bullish run fuelled by dollar inflation. It's possible that debt continues to rise to the point where investors begin to loose confidence in the economy at which point they may sell assets such as bonds and move into gold. It is also important to remember that gold is most commonly traded in US Dollars so any depreciation of the USD will cause an appreciation of Gold against it.
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6/22/2021 The yen index is down -0.33% on the day and is extending its losses to the downside on weakness in the currency. The Fed's decision to raise rates sooner than we expected has caused US bonds to slip as well, sending yields closer to Japan's bond yields, thus decreasing appetite for the USD. JXY […]
Crypto Stumbles to Lows, EU Awaits PMI Data, SPX Flat6/22/2021 EUR/USD Analysis EU bounces off support and oscillates between support and resistance from 1.19100 and 1.18700. German and French PMI data will report tomorrow which could add extra volatility in the market. The US also has PMI news coming out that day, so we can […]