After a month of gain, the US Dollar Index has paused briefly, with a strong inflow of data from the labour market, while bond yield has stabilized.
The US dollar index has got off to a weak start in April, while March was a month of positive movement. Good data is coming from job reports and service activity in the United States, which has lowered the dollar index. The USD touched a 5-month high at 93.47 on March 31, but it was unable to pierce through this resistance level and moved downwards. If the dollar index moves lower, it might even test the 91.00 area.
The 10-year US yields slipped briefly to a level lower than 1.70%, though it recovered later.
The DXT has weakened with investors moving away from the greenback. It has helped the EUR/USD and GBP/USD currency pair move higher. The soft greenback has helped to strengthen other currencies like the Japanese yen and the Canadian dollar.
US Dollar Index lower with Strong Labour Market Data
Total non-farm payroll employment has gone up by 916,000 in March. Though it is much lower than the pre-pandemic peak in February 2020, it is the biggest gain since August 2020.
The unemployment rate has decreased 6.0%, says the US Bureau of Labour Statistics. The labour market shows improvement with better economic activity. The coronavirus pandemic had curtailed growth in the economy in 2020. Job opportunities are improving in 2021, and in March, job growth has become better. Some sectors that see widespread growth are hospitality, education, construction, and leisure.
Though the unemployment rate is much lower than what it was in April 2020, it is higher than what it was in February 2020. The unemployment rate in February 2021 was at 6.2%, while in March it is at 6.0%.
About 22 million people lost their jobs in the US during the pandemic and experts estimate that it would take another two years for booming economic activity to resume. The US Treasuries are facing a selloff as investors are now worried about inflation that may occur from surplus money flow from the recently announced large stimulus packs.
Manufacturing and Service Activity Weakens the US Dollar Index
Strong job data and good manufacturing and service activity in March have brought the Wall Street indices to reach record highs in April, which has sent the US dollar lower. US Consumer Confidence is at a one-year high in March. Consumer Confidence in March is at 109.7, while it was just 91.3 in February.
Factory orders have declined in February, but manufacturing has improved with the fiscal stimulus improving sentiment. According to the Commerce Department, factory orders have come down 0.8% in February, while they surged 2.7% in January.
Winter storms in Texas and Southern US have resulted in low consumer spending and production, say analysts.
The Institute for Supply Management (ISM) says that factory activity has become better as demand has improved after the pandemic.
Household spending has gone up recently as confidence is building up and people are willing to spend more. The additional amount to households coming as pandemic relief from the government has increased spending. Home prices have surged higher, as more people intend to purchase a home in the near future and plan to buy cars and other household appliances.
US Dollar Index Stabilizes along with Bond Yields
Bond yields have stabilized, which has kept the dollar positive. Earlier, Treasury yields had gone up, and the dollar index had also moved higher along with bond yields which were at 1.776% last week. On Tuesday, the 10-year Treasury yields went below 1.70%. Bond markets will now focus on the Federal Reserve Minutes to be released on Wednesday. Strong non-farm payrolls on Friday have helped the 10-year yield to spike higher than 1.70%.
The US 10-year yield has regained the 1.70% area after dropping briefly to the 1.68% zone.
Vaccination Rollout Brings Confidence in Economic Activity
With vaccination rollouts increasing, there is more business activity in the country. About 147 million doses of vaccines have been administered, according to reports. Further, the $1.9 trillion relief package as pandemic aid has improved sentiment in the country. Households have received $1,400 as additional payment. Restrictions on businesses are lifted with the vaccination rollout.
Vaccination rollout is going on at a brisk pace in the US, and the economy has grown stronger with fewer lockdown restrictions. The stimulus plan has given a boost to the economy. Businesses can now recover at a faster pace, though inflation is a worry that remains in the background.
US President Joe Biden has announced another $2.25 trillion to revive the economy.
EUR/USD
The Euro has not kept pace with the dollar index. It has moved below 1.18, as the pandemic has curbed activity in the eurozone. Surging Covid infections in France, Italy, and Germany keep authorities concerned about economic growth.
AUD/USD
The Australian dollar has held steady, with the central bank keeping policy settings unchanged. The AUD/USD currency pair is at the April highs.
GBP/USD
The British Pound moves higher against the US dollar index on the back of a successful vaccine program and fading dollar strength.
