18.9 C
New York
Tuesday, May 18, 2021

With A Million New Jobs Looming, Why Can’t U.S. Dollar Rally?

Must read

Siemens Energy does not currently plan full Siemens Gamesa takeover

Stock Markets6 minutes ago (May 18, 2021 09:36AM ET) (C) Reuters. FILE PHOTO: A model of a wind turbine with the Siemens Gamesa logo is...

U.S. housing starts drop sharply; building permits rise modestly

Economic Indicators7 minutes ago (May 18, 2021 09:36AM ET) (C) Reuters. New townhomes are seen under construction while building material supplies are in high demand...

Thai workers killed in Israel-Palestinian conflict as truce calls mount

2/2 (C) Reuters. Smoke rises following an Israeli air strike, amid a flare-up of Israeli-Palestinian fighting, in Gaza City May 17, 2021. REUTERS/Suhaib Salem 2/2 By Nidal...

Exclusive: Orcel cuts Santander claim to more than $55 million in job offer case – source

(C) Reuters. FILE PHOTO: Andrea Orcel poses with IFR's 'Bank of the Year for 2015' award at the 2016 IFR Awards event in London,...

The U.S. dollar kicked off the first trading day of May with broad-based losses. On Friday, U.S. non-farm payrolls are due for release, and with the labor department expected to report a million new jobs, some investors are wondering why the U.S. dollar is unable to rally. With one of the world’s best vaccination rates, stimulus checks and a rollback on restrictions, the U.S. is not only recovering rapidly but emerging as the world’s leading engine of growth.

The biggest problem for the U.S. dollar is that on its most fundamental level, the greenback is a safe-haven currency. The U.S. led the recovery since the beginning of the year, so investors had plenty of time to buy dollars and take profits. Now, vaccination rates are rising in Europe and they are looking to ease restrictions. The first quarter was the U.S. recovery trade, but the second to third quarters should be focused on the global recovery. Strong global growth is generally more positive for high-beta currencies than safe-haven currencies like the U.S. dollar. When Eurozone nations finally rollback restrictions and show stronger data, there will be renewed interest and demand for the euro. The recent weakness in the dollar is a reflection of investors getting ahead of this trading opportunity.

Add to that the Federal Reserve’s insistence that substantial progress has not been reached and an unexpected decline in the manufacturing ISM index, and we can see why the U.S. dollar refused to rally despite the prospect of a very strong jobs report on Friday. Economists were looking for the ISM manufacturing index to rise to 65 from 64.7 but it dropped to 60.7 in April. According to the details of the report, it is high prices and supply shortages that set back activity instead of demand, but yields declined. The ISM services and non-farm payrolls report are still expected to show a red-hot recovery. The U.S. dollar should respond positively to these reports, but as the global recovery becomes the bigger story, demand for U.S. dollars will wane.

Aside from the U.S. jobs report, the Reserve Bank of Australia and Bank of England monetary policy announcements are also in focus this week. The RBA meets tonight and it is widely expected to keep monetary policy unchanged. The RBA should share the RBNZ’s concerns about house prices but, with overall inflationary pressures subdued, it is in no rush to act. Even with the extraordinary amount of stimulus the RBA is providing, core price growth hit its lowest level ever in the first quarter. A lot of this is driven by slow wage growth, which is a challenge to recover, so it may be some time before price pressures see meaningful acceleration.

Sterling was the best performing currency on Monday as investors prepare for optimism from the Bank of England. While no changes are expected from the BoE, the strong recovery will prompt the central bank to revisit its outlook. Its economic assessment will be more upbeat as the government prepares to end its one-metre social distancing rule on June 21. This would pave the way for the reopening of live concerts, sporting matches and theaters just in time for summer.

The Australian and New Zealand dollars also traded higher, but the Canadian dollar lagged behind. Unlike the U.S., economists are looking for job losses in Canada in the month of April. A large part of the country is still in lockdown, but the primary reason for the potential data disappointment is the unexpectedly strong job reports over the past few months.

- Advertisement -

Latest article

Siemens Energy does not currently plan full Siemens Gamesa takeover

Stock Markets6 minutes ago (May 18, 2021 09:36AM ET) (C) Reuters. FILE PHOTO: A model of a wind turbine with the Siemens Gamesa logo is...

U.S. housing starts drop sharply; building permits rise modestly

Economic Indicators7 minutes ago (May 18, 2021 09:36AM ET) (C) Reuters. New townhomes are seen under construction while building material supplies are in high demand...

Thai workers killed in Israel-Palestinian conflict as truce calls mount

2/2 (C) Reuters. Smoke rises following an Israeli air strike, amid a flare-up of Israeli-Palestinian fighting, in Gaza City May 17, 2021. REUTERS/Suhaib Salem 2/2 By Nidal...

Exclusive: Orcel cuts Santander claim to more than $55 million in job offer case – source

(C) Reuters. FILE PHOTO: Andrea Orcel poses with IFR's 'Bank of the Year for 2015' award at the 2016 IFR Awards event in London,...

Tether To Go Live on High-Speed Avalanche

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order...