Daily Market Pulse

The economic recovery narrative might continue to help the dollar


The U.S. dollar dipped -0.43% against a basket of major currencies on Monday as data showing a surge in U.S. employment bolstered risk-on sentiment. The U.S. labor department said on Friday that nonfarm payrolls surged by 916,000 jobs last month, the biggest gain since last August. Although the USD and yields retracted yesterday, the economic recovery narrative might continue to help the dollar, which remains one of the best performing G10 currencies on a year-to-date basis. Looking ahead, while investors digest the recent services PMI which indicated a substantial increase in business activity across the U.S. service sector, the U.S. will release job openings data for February, a useful gauge of labor market health.


The common currency recovered some lost ground (+0.44%) and closed in positive territory against the U.S. dollar on Monday. Looking ahead, April may not be an easy month for the EUR as investors may continue to weigh the impact of extended lockdown on the bloc’s economy. The vaccine rollout progress will dictate, in parts, the EUR’s performance. So far, the rollout has been beset by a troubled start due to suspected side effects from the AstraZeneca vaccine. Highlighting the docket will be February’s unemployment figures from the Eurozone, as well as consumer inflation expectations. 


The British Pound edged up 0.55% against the dollar on Monday as expectations for a vaccine-led economic recovery in the U.K. boosted the GBP. Also, the U.K. proceeding as expected along the lockdown easing roadmap is probably providing some support here, although the resumption of non-essential international travel from Britain could face further delay if Covid-19 infections continue to surge elsewhere in the world, the government warned. Today, while there is no significant data to be posted, the annual IMF-World Bank spring meetings will begin.


A pullback in U.S. benchmark yields benefited the Japanese yen on Monday. The JPY rose 0.47% as the U.S. benchmark 10-year Treasury yields dipped below 1.7%. For today, investors and traders will digest the soft household spending, as well as the Services PMI for March. Japan’s household spending dropped 6.6% in February (vs. -6.1% in January) for a third straight month, as restriction measures to prevent the spread of the Covid-19 hurt consumption and raised the risk of a more prolonged and slower economic recovery. Meanwhile, the Services PMI posted 48.3 in March from 46.3 in February, signaling a softer, albeit sustained contraction in business activity.


The Loonie started the week on the right foot, gaining 0.4% against its rival U.S. dollar. However, further gains were capped after future oil prices (West Texas Intermediate) was down 4.29% to $58.65/barrel, pressured by rising supply from OPEC+ and higher Iranian output. In general, it is consensus among market players that the CAD should stay relatively well supported after a dovish message from Canada’s Central Bank. Later in the month, the central bank may announce a potential reduction of its bond purchases program, signaling that the Canadian economy is recovering at a sustained pace. Today, there is no material economic data to be released. 


The Mexican Peso was almost unchanged (+0.06%) on Monday as business conditions in Mexico’s manufacturing industry continued to worsen in March. The Manufacturing PMI increased from 44.2 in February to a one-year high of 45.6 in March (still in the contraction territory). According to the report, the sector was again hampered by Covid-19 restrictions, with business closures causing further reductions in sales and output. Looking ahead, the Bank of Mexico will publish its Consumer Confidence Index, which is expected to show some improvement.


In China, the CNY started the week flat against the U.S. dollar, with investors waiting for the Western markets to reopen after a long holiday weekend. Earlier today, Services PMI showed that the service sector expanded at a stronger pace in March, with firms reporting the steepest increases in both activity and overall sales for three months. The PMI posted 54.3 in March, up from 51.5 in February. The upbeat headline may propel up the CNY during today’s session. Elsewhere, China has launched its own digital currency which is controlled by its central bank. It is expected to give China’s government vast new tools to monitor both its economy and its people. It is worth highlighting that this digital money isn’t linked to the dollar-dominated global financial system.


The Brazilian Real rose 0.77% against the U.S. dollar on Monday. The BRL benefited from a weaker greenback, which retreated abroad. The recent official data showing an increasing inflation trend in the city of São Paulo also helped the BRL, once it propels monetary policy tightening measures by Brazil’s Central Bank. Meanwhile, market players assess the impasse surrounding this year’s federal budget. The USD 264 billion budget was approved by Congress in March but not signed off on by President Jair Bolsonaro. It is now being revised after it emerged it could break one of the government’s key fiscal rules. On the economic front, Services and Composite PMIs will be released later today.


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