When will the dollar rally end?

By 08/03/2021News
Morning Stock News

Gold  1708,455

EURUSD   1,1915

DJIA  31521

OIL.WTI  67,555

DAX   14048,50

Last week turned out to be quite successful for the US dollar. On Friday, after the publication of the US employment reports, the dollar continued its rally and EUR/USD reached its lowest level since last November. It would seem that pumping huge amounts of dollars into the US economy should have the opposite effect.



Thanks to the opening of restaurants and bars, the US economy is gaining momentum. More than two-thirds of new jobs have come in the catering sector. We can already see how the lifting of restrictions is having an effect on the economic recovery. This trend will continue as more and more Americans are vaccinated with the COVID-19 vaccine.
After Powell’s speech it was clear that the US Federal Reserve was letting bond yields float freely. The main focus for the Fed remains the labour market. Powell stated that the labour market is still a long way from recovering. This can be interpreted to mean that strong labour market reports will not be a signal for monetary policy tightening decisions for some time to come.
Investors will now have to decide how to deal with the USD. If bond yields continue to rise because of weak demand, investors are likely to continue exiting risky assets. If that is the case, the dollar will continue to strengthen.
Due to the slow introduction of the vaccine in Europe it can be seen that the USA is coming out of the lockdown faster and therefore a faster recovery of the US economy than that of the Eurozone can be predicted. ECB meeting is coming up but the bank is not going to make any additional monetary policy decisions in advance. This will put additional pressure on the Euro and it might well push the EUR/USD down to the 200 SMA at 1.18.
While the trend of USD strengthening remains in the investors’ preferences, it is worth remembering that there is another bailout plan being prepared, which will bring huge amount of dollars to the markets. Where that money will go is hard to predict, but it is worth considering that the markets may try to buy back the falling stock market, which will put pressure on the dollar.

What’s in store for us today?

00.50 Japan’s January nonseasonally adjusted balance of payments
08.00 Germany’s Industrial Production in January
11.00 Address by E.Bailey, Governor of the National Bank of England

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