Foreign exchange analysts at Nordea notes the strength in recent US data releases and the upgrading of consensus forecasts surrounding US growth.
The bank expects that strong growth, especially in relation to the Euro-zone will lead to further Euro-to-Dollar exchange rate selling in the short term.
It expects that EUR/USD will weaken to at least 1.1750 and potentially further.
Strong US growth expectation will boost the US Dollar (USD)
The bank notes that recent US data releases have been stronger than expected and there was a much stronger than expected jobs report on Friday with an increase in non-farm payrolls of 379,000 compared with consensus forecasts of an increase close to 200,000.
“Consensus economists seem to be competing among themselves to hike their US growth forecasts following: i) fiscal divergence, ii) vaccine roll-out divergence and iii) a more benign financial impulse from currency weakness in 2020. We wouldn’t fight this trend.”
Short-term growth expectations will inevitably be boosted by Senate approval of the $1.9trn support package.
There will inevitably be a positive impact on consumer spending given cash payments to individuals.
The US economy is now expected to perform much more strongly that the Euro-zone and history suggests this will strengthen the dollar.
Bond yields liable to increase further
In contrast from their expectations last month, the bank is now less confident that the huge increase in liquidity resulting from the drawdown in the Treasury’s cash balance will weaken the US dollar.
Expectations of stronger growth will tend to increase the threat of bond selling.
Nordea notes that, in comments last week, Fed Chair Powell declined to push back against the increase in bond yields.
The bank is concerned over the threat of further cash selling of Treasuries which would put further upward pressure on yields. If higher yields trigger a slide in equities, the dollar could also gain defensive support.
The bank expects that strong growth, especially in relation to the Euro-zone will lead to further Euro-to-Dollar exchange rate selling in the short term.
It expects that EUR/USD will weaken to at least 1.1750 and potentially further.
Strong US growth expectation will boost the US Dollar (USD)
The bank notes that recent US data releases have been stronger than expected and there was a much stronger than expected jobs report on Friday with an increase in non-farm payrolls of 379,000 compared with consensus forecasts of an increase close to 200,000.
“Consensus economists seem to be competing among themselves to hike their US growth forecasts following: i) fiscal divergence, ii) vaccine roll-out divergence and iii) a more benign financial impulse from currency weakness in 2020. We wouldn’t fight this trend.”
Short-term growth expectations will inevitably be boosted by Senate approval of the $1.9trn support package.
There will inevitably be a positive impact on consumer spending given cash payments to individuals.
The US economy is now expected to perform much more strongly that the Euro-zone and history suggests this will strengthen the dollar.
Bond yields liable to increase further
In contrast from their expectations last month, the bank is now less confident that the huge increase in liquidity resulting from the drawdown in the Treasury’s cash balance will weaken the US dollar.
Expectations of stronger growth will tend to increase the threat of bond selling.
Nordea notes that, in comments last week, Fed Chair Powell declined to push back against the increase in bond yields.
The bank is concerned over the threat of further cash selling of Treasuries which would put further upward pressure on yields. If higher yields trigger a slide in equities, the dollar could also gain defensive support.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.