FX.co ★ Will the US dollar and economy recover in the future?

Recent reports say that China has finally implemented the phase 1 of trade deal with the United States, as China has started to buy heaps of agricultural commodities, which will help boost US employment.

Meanwhile, Fed Vice Chairman Richard Clarida and Governor Lael Brainard are scheduled to speak publicly next week to discuss the economy and the Fed's new monetary policy, which will help foster the pace of economic recovery.

At the same time, Wall Street and Columbia are fanning the buzz and hopes that the upcoming vaccine will return economies to pre-pandemic states, however, even if this measure is very effective in combating the pandemic and returning the economy to "normal state," the situation before the outbreak is in fact, far from normal and healthy.

The annual change in GDP in the fourth quarter of 2020, compared to the last 12 months, was only 2.3%, and most importantly, in order to even reach this rather modest level of GDP growth over the course of the year, the Fed had to cut interest rates three times in the five months to early 2020.

In addition, the amount of debt that the corporate sector was dragging along could not cope with the Fed's tendency to normalize interest rates, so the banking system was brought to a standstill. So the Fed resolved this issue by flooding dollar liquidities, which continues up to this day.

Thus, a return to the "normal state" may be far from happening, but even more frightening are the prospects after the pandemic. The US government has exploited prevailing terms of onerous debt, asset bubbles, unfathomable borrowing costs and a huge increase in the supply of dollars, including the Fed's new ventures to buy junk bonds and loans on the primary market.

Specifically, the Fed has increased its outstanding debt burden by 30%, mainly because individual states are in need of a trillion-dollar federal aid, and the business sector is accumulating debt at a rate of $ 3 trillion a year.

The approval and release of the coronavirus vaccine will be a catalyst for the US government to begin easing its massive and volatile financial supports, and such will lead to the inevitable fall of the US dollar in the market.

Investors will be left with a weakened economy that can no longer rely on multi-trillion dollar stimulus, or in other words, the US economy may fail to recover from the crash, which will drag the US dollar down in the market.