The dollar was boosted by expectations of strong US growth and posted fresh 3-month highs.

Confidence surrounding a global recovery remained firm which underpinned risk conditions. Wall Street equities were, however, subjected to choppy trading with net losses amid tech selling. Although US futures posted gains on Tuesday, there was volatility in Asia and losses in China.

The dollar was boosted by expectations of strong US growth and posted fresh 3-month highs. EUR/USD dipped to 3-month lows below 1.1850 with only a marginal recovery. Sterling held firm with a significant net advance against the Euro.

The Euro-zone Sentix investor confidence index strengthened to 5.0 for March from -0.2 the previous month and above consensus forecasts of 1.9 with little impact.

The US employment trends index strengthened to 101.0 for February from a revised 99.7 the previous month. There were reports that the Federal Reserve was now looking at a new set of labour market indicators including wages growth for low-wage workers and the rate of labour force participation for those without college degrees.

Overall confidence in the US growth outlook remained strong following Friday’s stronger than expected employment report. This optimism over the economy continued to provide support for the US dollar while commodity currencies remained on the defensive.

The ECB did not change the rate of bond purchases in the latest week despite some concerns over an increase in yields. The Euro blipped higher following the data, but quickly lost ground again. The Euro was again undermined by expectations that the Euro-zone economy would under-perform relative to the US.

The dollar posted fresh 3-month highs amid widespread gains and EUR/USD also dipped to 3-month lows below 1.1850.

Euro confidence was also undermined by news that the curfew in the Netherlands would be extended until the end of March. EUR/USD traded just above 1.1850 on Tuesday as underlying dollar confidence remained strong and higher yields continued to limit scope for selling while commodity currencies lost ground again.

The dollar maintained a firm tone ahead of Monday’s European open with further support from an increase in bond yields. Treasury Secretary Yellen stated that the latest fiscal stimulus package will not address all long-standing economic problems and the next focus would be on the build back better programme. She added that the economy could get back to the pre-pandemic level of jobs next year and that there were tools to deal with any increase in inflation. Yellen still expressed concerns over the risk of long-term scarring in the economy, especially for women.

US Commerce Secretary Raimondo stated that a strong dollar is good for America and rejected calls for a weakening of the US currency.

Technology stocks lost ground into the New York open, but there was support for Wall Street equities as a whole amid expectations of a strong US recovery. The yen lost ground on the crosses and USD/JPY posted highs above 108.90 at the European close.

Chinese equities declined sharply at the Asian open and gains triggered by reports of official buying faded into the close. The Chinese yuan recovered from initial sharp losses. Japanese household spending declined 6.1% in the year to January after a 0.6% decline previously, but there was a smaller decline in average earnings.

The yen overall continued to weaken amid higher global bond yields with USD/JPY at 9-month highs around 109.20 and EUR/JPY near 129.50 before a slight correction.

Bank of England Governor Bailey stated that contingency planning for negative interest rates did not imply any intentions for moving in that direction. He added that the UK economy faced two-sided risks to the recovery and that risks were tilted to the downside for now, but the risks are gradually diminishing.

As far as inflation is concerned, Bailey noted that the rate would increase in the short term and it will be challenging in determining whether any increase in prices is likely to be persistent. The rhetoric had little overall impact with markets assuming that negative rates were off the table.

Schools in England re-opened on Monday, reinforcing expectations that there would be an economic recovery ahead of the Euro-zone. Continuing success in the vaccine programme continued to provide net support for the UK currency. Sterling was unable to make any headway against a firm US dollar and GBP/USD dipped to re-test the 1.3800 level while GBP/EUR rallied to highs around 1.1670.

Latest data from Barclaycard recorded a 13.8% decline in annual consumer spending for February, while consumer confidence posted a 12-month high amid re-opening hopes.

Economic Calendar

06:30Non-Farm Payrolls QQ-0.20%
07:00German Trade Balance(JAN)16.4B16.1B
09:00Industrial Output YY WDA(JAN)-1.40%-2.00%
09:00Industrial Output MM SA(JAN)0.30%-0.20%
10:00Euro-Zone GDP (Q/Q)-0.60%
10:00Euro-Zone GDP (Y/Y)-4.40%-5.00%
21:45NZD Electronic Card Retail Sales (Y/Y)(FEB 01)1.90%
21:45NZD Electronic Card Retail Sales (M/M)(FEB 01)-0.40%
23:30AUD Westpac Consumer Confidence(MAR)1.90%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.