US economy really picks up steam

Don't be fooled by all the doom stories in the wake of the Capitol storming and the impeachment of Donald Trump. The US economy is heading for a much better year than you think.

In the United States, 140.000 jobs were lost in December. It was the first time in 8 months that employment fell. At first glance, it seems as if this will put a damper on the economic recovery that emerged after the corona blow in spring 2020. There is a good chance that it is just a breather and that the economy will soon receive a significant boost. Consumer spending is usually the main driver of growth in the United States.

Well-filled wallet
It takes two things to drive that spending. First and foremost, people should have enough money in their wallets. In addition, they also need to have enough confidence in the economy and their future income situation to actually spend that money. Richard Clarida, deputy chairman of the US central bank, said this week that the first condition has been met.

Americans' wallets are well stocked, thanks to a new $900 billion bailout package approved just before the turn of the year. Biden made a pledge of another $1.900 billion on top of that this week. A large part of that amount will soon be used to increase the corona benefits from approximately $600 to approximately $2.000 per month. In addition, according to Clarida, the population has a savings surplus of $1.000 billion.

Dollar less popular as a safe haven
According to fellow Fed member Thomas Barker, it is only a matter of time before confidence returns with conviction. In his view, there is a clear route to that bright future, which starts halfway through the year with a favorable vaccination rate. Incidentally, there is not much to notice on the currency markets of this bright future.

The Dollar Index - which compares the value of the US currency against that of a basket of other major currencies such as the euro, pound and yen - has fallen by more than 10% since mid-March. This is partly the result of the recovery in the financial markets. As a result, there is less demand for dollars as a safe haven in uncertain times.

This is what Biden is doing to the dollar
The arrival of new president Joe Biden also pushes the dollar down. He wants to invest hundreds of billions of dollars in health care and refurbishing infrastructure. A Democratic post-election victory in Georgia gives Biden plenty of room to push through his plans. Investors are demanding a higher return on their investments in US loans due to the prospect of US government debt rising sharply.

Recently, the yield on ten-year bonds exceeded 2020% for the first time since spring 1. By way of comparison: for the Netherlands the interest is -0,5%. The relatively high return lures investors to the dollar. All stories that 2021 will be the year of the dollar crash should therefore be taken with a large grain of salt. The prospect of the US economy really picking up steam soon makes it far too early to write off the currency for the next 12 months.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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