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US Dollar Subdued As Mnuchin Allows Fed Emergency Lending Programs to Expire

November 20, 2020 at 4:01 by Andrew Moran

A USD bill sloping downwardsIs the US dollar in store for a rally in the coming days amid a potential selloff in the broader financial markets? With news that several of the US central bank’s emergency lending programs will be allowed to expire at the end of the year, equities could come under pressure, which would possibly benefit the traditional safe-haven asset.

The Treasury Department announced on Thursday night that it would let several of the Federal Reserve‘s emergency lending facilities to expire on December 31. This, market analysts contend, would minimize the Fed’s ability to support the financial system and help the economic recovery.

Steven Mnuchin, the Treasury Secretary, wrote in a letter on Thursday that he would not approve extending a few of the Eccles Building’s programs that were established in response to the coronavirus-induced financial crisis. These efforts gave the central bank the ability to lend up to $4.5 trillion into a diverse array of Wall Street and Main Street markets. So far, the Fed has only loaned about roughly $25 billion.

Meanwhile, Mnuchin approved 90-day extension to three programs that backstopped commercial paper and money markets.

Analysts presented the case that Mnuchin or his successor in the Joe Biden administration could choose to resuscitate the emergency lending programs under a new agreement with the Fed.

Still, the US central bank expressed its disagreement with the move, writing in a publicly released statement:

The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.

The US Chamber of Commerce echoed the Fed’s sentiments:

A surprise termination of the Federal Reserve’s emergency liquidity programs, including the Main Street Lending Program, prematurely and unnecessarily ties the hands of the incoming administration, and closes the door on important liquidity options for businesses at a time when they need them most.

This comes soon after the Department of Labor reported a surprise increase in the number of Americans filing for first-time unemployment benefits. According to the weekly report, initial jobless claims came in at 742,000 in the week ending November 14, higher than the median estimate of 707,000.

The four-week average hit 742,000, while continuing jobless claims topped 6.372 million.

In overnight trading, the greenback has been rather subdued, although it is on track for a weekly loss. The US Dollar Index, which measures the greenback against a basket of currencies, was flat at 92.30. The index is poised for a weekly loss of 0.5%, adding to its year-to-date slump of 4.25%.

The USD/CAD currency pair was flat at 1.3075, while the EUR/USD was unchanged at 1.1876.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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