U.S. Dollar Trying to Hang on to Multi-month Best
MARCH 09, 2021
The U.S. Dollar is trading in strong ranges but is slightly off of its best levels around November following yesterday’s decline in stocks and concerns over the strength of the economic recovery globally.
Volatility is certainly high after a day of correction for the Nasdaq exchange, which revealed concerns over the pace at which some companies’ stock is being valued. Indeed, things are brewing up for greenback advancement as doubt gets a hold of markets while financial authorities such as Treasury Secretary Janet Yellen say there is no need to worry about exceeding 2.0% inflation nor higher bond yields. More importantly, she encourages the passing of very large and robust stimulus as the economy has demonstrated most sectors still need to climb out of the hole the pandemic put them in.
While the buck seemed to have more moving in its favor yesterday, this morning’s data out of Europe shall help solidify the downfall we foresaw for the shared currency based on their economic woes. The winter set Europe back and Gross Domestic Product showed it. We shall see how the next few days play out with meetings for the European Central Bank and officials making statements. There is buzz that the rescue package could be approved as soon as today, we will see how this affects FX flows.
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The Euro sank to its weakest point since American Thanksgiving following underwhelming economic data, confidence on the French side about the pandemic, and statements form European Central Bank officials that indicate looser monetary policy. Overall, the German and French economies have been slow, hit particularly hard after Q4 infections rose to records while the vaccination plans were going awry. Regardless, French Finance Minister Bruno Le Maire said the economy will quickly recover.
Meanwhile, GDP figures for the whole Euro-zone contracted (-0.7%), worse than the predicted (-0.5%). This in turn is why ECB officials have been saying that they could do more and help more. We shall see what course of action the ECB has in store. What is clear is that many factors are playing against Euro as the positives have been harder to find and point out.
Although we feel the Pound is overvalued, the currency remains steady and is finding new reasons for advancement, which are a bit unexpected. After months in 2020 of speculating that the Bank of England would be exercising negative interest rates, the belief now is that the country’s economy is holding OK, and hiking interest rates before the Fed is a possibility.
Although Governor Andrew Bailey did not say that is exactly where the bank is headed, his less than dovish tone and feelings over the pandemic is making some traders bet that BOE could join the Reserve Bank of Australia and the Norges Bank in Norway.