Dollar strengthens on expectations of accelerated US economic recovery

18 February 2021

Andrey Maslov, analyst, FINAM Group

On Thursday, February 18, EUR / USD is up 0.08% after falling 0.75% in recent days and is trading near 1.2045. The DXY dollar index is also up 0.02% and is at 90.938 amid the publication of a number of indicators, positively perceived in the global markets, which may signal a faster recovery of the US economy than previously expected.

Central to the discussion of the outlook for the American economy is the possible path of inflation, and given the additional $ 1.9 trillion economic stimulus package, largely financed by borrowing, which will pour into the US economy. To make progress on new incentives, Joe Biden met with union leaders on Wednesday to rally their support.

The rise in the US currency began on Tuesday, when the yield on 10-year government bonds reached a new annual high, climbing to 1.333%, compared to 1.200% at the end of last week. The gap between the ten-year and two-year US government bond yields also widened to its largest level in three years, suggesting that investors do not expect the Fed to raise interest rates in the short term. That being said, the Fed also released the minutes of its January meeting on Wednesday, strengthening its position to allow the economy to overheat while maintaining loose monetary policy.

The epidemiological situation remains difficult in Europe. Thus, the Hague court called for weakening quarantine measures in the Netherlands, as this “infringes upon human rights and freedoms.” Thus, the recent protests and pogroms in Amsterdam have achieved their goal. In Germany, the rate of vaccination of the population is increasing, which positively affected the economic sentiment index from the ZEW, which rose to 71.2 points in February from 61.8 points a month earlier, which was significantly better than market expectations of 59.6 points.

As for macroeconomic statistics in the US, retail sales rose by 5.3% (m / m) in January against the forecast of growth by 1.1% (m / m) and a fall by 1% (m / m) in December. Retail sales of major products (excluding cars) increased 5.9% (MoM) in January, compared to the projected 1.1% (MoM) growth and 1.8% MoM decline recorded by December. The PPI rose 1.3% month-on-month in January, higher than forecast of + 0.4% and a 0.3% gain in December. Industrial production, in turn, in January increased by 0.9% (y / y) compared with the result in December last year of + 1.3% (y / y), while analysts expected an increase of 0.5% (y / y).

In the eurozone, the volume of construction continues to fall, showing a decrease of 2.3% (m / m) compared with a fall of 0.6% (m / m) in December.

Today in the US will become known data on the index of business activity in the industrial sector from the Federal Reserve Bank of Philadelphia for February, initial applications for unemployment benefits. In addition, data on the number of building permits issued and the volume of construction of new houses in January will be published. In the eurozone, preliminary data on the consumer confidence index for February will be published.

The EUR / USD rate, after falling by more than 0.5% a day earlier, is trading closer to the support level of 1.2000, at 1.2042. Stochastic lines are moving down, which is favorable for sales.

This information is not investment advice.

Libertex [CPS] WW



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