Currency Market Analysis

May 04, 2021 | Currency Market Analysis

Global Themes

The US dollar is higher across the board and is stronger for a 3rd day out of the past four sessions. The dollar seems to be finding some support after a broad sell-off in the month of April. Yesterday, the Markit Manufacturing Purchasing Managers Index and ISM Manufacturing Index for April showed continued strong growth of the US economy, though the latter was somewhat weaker than had been expected. Equity markets are lower this morning after many reached record highs in recent days. US 10-year Treasuries yield 1.60% this morning. The US Goods & Services Trade Report in March recorded a deficit of $74.4 Billion, bang on expectations. Markets will keenly watch Wednesday’s ADP Report for indications of Friday’s important Non-Farm Payrolls Report. The Services/Composite PMI reports tomorrow will also be closely watched for signs of strength of the reopening of the US and global economies.

AUD

The Reserve Bank of Australia gave a very dovish signal to markets overnight leaving its policy Cash Rate unchanged at 0.1% as expected. They also left their quantitative easing program unchanged, saying it could be extended into 2022. They also suggested they didn’t anticipate raising interest rates until 2024. They did, however, raise their economic forecasts. 

GBP

The British Pound is lower vs the dollar despite a healthy April Manufacturing PMI of 60.9 vs 58.9 in March. Covid cases in the UK have also fallen to near zero, and the UK announces plans to fully reopen its economy in seven weeks. The Bank of England makes their decision on monetary policy this Thursday and is expected to leave interest rates and its quantitative easing program unchanged. But it will have to upgrade its economic growth forecasts and acknowledge the further progress made against Covid.

EUR

The Euro is consolidating its gains above its 1.2000 support level vs the US dollar ahead of more important data this week that will provide further guidance. Investors have gone long Euros as new Covid cases decline in the common currency zone and the vaccination effort kicks into gear. Growth projections for the Eurozone are 4.4% this year, despite a contraction of growth in Q1.


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