EUR/USD Slips To New Lows On Good US Data

Stronger than expected economic reports drove the U.S. dollar higher against all of the major currencies. There’s no question that of the G3 currencies (USD, EUR, and JPY), the U.S. is leading the recovery, and data is beginning to show the benefits of a smooth coronavirus vaccine rollout. Seventy percent of Americans 65 or older have received at least one COVID-19 vaccine dose with more than a third of the overall adult population receiving their first jab. Businesses are reopening and economic activity is accelerating. As a result, jobless claims fell to 684K, its lowest level in more than a year. Fourth-quarter GDP growth was also revised up to 4.3% from 4.1%. The U.S. economy is still a long way from normal but the numbers show that it is moving in the right direction. With more Americans getting vaccinated every day, further improvements are likely. Personal income and spending numbers are due for release tomorrow.

U.S. dollar banknote with map

Image Source: Unsplash

While investors bought dollars, stocks did not turn higher until after the London close. The reluctance can be partly attributed to Federal Reserve Chairman Powell’s comments on NPR’s Morning Edition. For the first time since the pandemic began, he talked about a future with less stimulus. Powell said, “As we make substantial further progress toward our goals, we’ll gradually roll back the amount of Treasuries and mortgage-backed securities we’ve bought.” However, all of this would be predicated on a strong recovery which is ultimately positive for U.S. assets and explains why equities recovered their losses to end the day up.

Fewer restrictions, more vaccinations stand in stark contrast with Europe where fresh lockdown measures were announced this month for Germany, France, and Italy. Compared to the U.S., only 9% of the German population have received their first shot. We have been bearish euros all month and that will remain true regardless of tomorrow’s IFO report. German business confidence may be bolstered by the stronger PMIs, but confidence in the region will be restrained until the government gets better control of the latest wave. ECB member De Guindos sees Eurozone GDP contracting in the first half of the year. EUR/USD dropped below 1.18 for the first time since November and it may not find support until the 50-week SMA at 1.17.

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