CNBC/Jeff Cox
More fiscal stimulus is needed even with vaccines, Bill Dudley says

The U.S. economy still needs fiscal help from Congress even with the increased probability that widespread vaccine availability is now in sight, former New York Federal Reserve President Bill Dudley said Monday.

For the second time in a week, a pharmaceutical company has announced a breakthrough in the coronavirus pandemic fight. This time, it was Moderna reporting that it has a vaccine up to 95% effective in heading off the virus. Pfizer made a similar announcement last week.

Even with the good news, Dudley said additional bridge money of $1 trillion to $2 trillion will be needed to get impacted individuals and businesses to the other side.

“So I think it makes the case for fiscal stimulus even more compelling, because you basically want to prevent scarring to the economy in terms of people’s balance sheets, in terms of small businesses being forced to close, and a little fiscal stimulus can go a long way in reducing the scarring in the economy so that you can have a stronger recovery on the other side” he told CNBC’s “Squawk on the Street.”

Opposing factions in Washington have been unable to come up with a compromise measure to buttress the $2.2 trillion CARES Act passed in March. Most of the funding from that legislation has expired while 11 million workers remain without employment.

Government red ink has continued to pile up during the crisis. The budget was $3.1 trillion in the hole for fiscal 2020 and started off the new year down $284 billion in October. Dudley acknowledged that the deficit spending could be a problem down the road but is needed now, particularly to help state and local governments that may have to start laying off essential personnel to balance their budgets.

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Reuters/Yahoo Finance
Vaccine rollout could cause U.S. dollar to fall 20% in 2021 – Citi

The widespread distribution of vaccines to combat the coronavirus pandemic and ongoing monetary easing could cause the U.S. dollar to weaken as much as 20% next year, Citibank said on Monday.

“When viable, widely distributed vaccines hit the market, we believe that this will catalyze the next leg lower in the structural USD downtrend we expect,” the U.S. bank said in a research note.

“Given this set-up, there is the potential for the dollar’s losses to be front-loaded, with the USD potentially falling by as much as 20% in 2021.”

Moderna Inc said on Monday its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage clinical trial, becoming the second U.S. company in a week to report results that far exceed expectations.

Citi’s bearish dollar view is also premised on bets that the U.S. central bank will continue to keep policy settings easy even if inflation expectations rise with an economy recovery, thus allowing the U.S. yield curve to steepen.

“This is important for FX as when investors begin to rotate into value, they will increasingly rotate out of the United States given valuations on both the SPX and USD are rich versus the rest of the world,” the bank said referring to the S&P 500 stock index and the U.S. dollar respectively.

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Reuters/Eileen Soreng
Gold inches higher on softer dollar, virus woes; vaccine hopes cap gains

Gold prices edged higher on Tuesday as the dollar slipped, while investors weighed concerns over spiking coronavirus cases globally against optimism over positive developments around a second possible COVID-19 vaccine.

Spot gold rose 0.1% to $1,890.27 per ounce by 0327 GMT, while U.S. gold futures were up 0.1% at $1,889.70.

Bullion dropped as much as 1.3% on Monday after drugmaker Moderna said its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage trial, becoming the second U.S. drugmaker after Pfizer to report results exceeding expectations.

“Traders are striking a balance between the positive vaccine breakthrough and the prospect of lower fiscal stimulus in the quarters to come,” said Margaret Yang, strategist, DailyFX.

But monetary environment is still very accommodative and may stay at current levels into spring of 2021 providing near-term support for gold prices, she added.

The dollar index was down 0.2%, helping bullion gain.

While Federal Reserve Vice Chair Richard Clarida on Monday acknowledged the successful tests of two coronavirus vaccine candidates as a positive for U.S. economic recovery, he also said that the central bank will apply an expansive view of the labor market in any discussion of potential rate hikes.

President-elect Joe Biden called on Congress to come together and pass a new coronavirus relief package, while new restrictions were placed in several U.S. states to curb a surge in cases.

If stimulus programmes are larger than what was expected, it would weaken currencies and boost gold, said Michael Langford, executive director at corporate advisory and consultancy firm AirGuide.

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