The US Dollar regains some lost ground on Tuesday although gains are more akin to a technical pullback before July FOMC meeting which is due on Wednesday. Technical nature of the move is also supported by the fact that EURUSD approached long-term resistance line and bears are unlikely to give up on it without a fight:

The policy of the US monetary authorities and fading momentum in the US recovery despite huge stimulus are two key drivers of the bearish trend in USD. Fresh stimulus package announced by GOP, despite the impressive size of $1 tn, turned out to be a rather blatant attempt to “come off steroids” – in the coronavirus relief bill, it was proposed to cut key unemployment benefits from $600 to just $200. Recall that it was due to smoothing out lost consumer incomes that the economy staged quite impressive comeback in May and June. Those benefits also masked real jobless rate thanks to huge number of unemployed temporarily moving out of the labor force. Without support of consumer spending we will certainly enter a season of disappointing US eco data and these expectations enter USD equation with a negative sign.

Drastic reduction in unemployment benefits mean an imminent shock to consumer spending, the main component of GDP. That is, we get the prospect of weak growth mixed with a new round of expansion of money supply, which creates a threat of stagflation – low growth rates and high inflation. In the market, this is reflected in expectations of decline in real interest rates – and an almost mirror-like reaction in Gold:

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