Dollar Down as Risk Soars on Fed and Data
APRIL 29, 2021
The U.S. dollar is under pressure this morning, unable to fend off losses from yesterday’s session.
The dollar lost broadly yesterday after the Federal Reserve gave markets “dovish assurances.” The Fed Chief spoke glowingly about the economic progress we have seen over recent months. However, the Fed continues to see risks and weaknesses in the labor market. In addition, the central bank doubled down on their view that inflation pressures are “transitory.” As a result, equity markets rallied, and the dollar dropped off.
Today appears to be a classic “risk-on” day. Following the Fed, markets are reacting positively to President Joe Biden’s State of the Union where he declared the economy is “on the move again.” Impressive earnings from tech giants Apple and Facebook after yesterday’s close have added to the positive risk sentiment.
Our recovery got a reality check this morning. The U.S. economy grew at a 6.4% annualized rate in the first quarter, up from 4.3% in Q4. Estimates ranged widely from 5.5% to as high as 10%. Personal consumption rose an eye-popping 10.7%. A separate report showed that weekly jobless claims fell to 553K last week. While still historically high, the trend continues to improve. The economy is benefiting from widespread reopenings, stimulus checks, and an impressive vaccine rollout. The solid data will continue to paint an improved picture for the economy as we emerge from the Covid pandemic but might continue to put downward pressure on the safe-haven greenback.
Pending Home Sales for March will be released at 10 a.m. Amazon and Twitter will release earnings after the bell this evening.
What to Watch Today…
- Pending Home Sales at 10 a.m.
The Euro was the main beneficiary of the Federal Reserve’s dovishness yesterday. EUR/USD initially shot higher and was able to hold those gains overnight. The pair briefly touched its highest level since the end of February. The common currency found added support following decent German jobs data. However, it appears American developments are more likely to drive EUR/USD movements throughout the day.
The Canadian dollar was on the offensive yesterday evening and throughout the night. The loonie touched its strongest level since February of 2018 as the price of oil rose and commodities continued to rally. Overall, the Canadian dollar has been on a long march stronger against the U.S. dollar for over a year. After reaching lows during the start of the pandemic, the loonie has railed 15% over the past 13 months.
The recent push stronger has come as the Bank of Canada became the first major central bank to start removing fiscal stimulus in the aftermath of the Covid-19 pandemic.