Dollar treading water after recent bounce

03 May 2021

The U.S. dollar steadied on Monday following its recent bounce with traders making a cautious start to a week in which a raft of important economic data will be published.  

“Trade was thinned by holidays in Japan, China and Britain, which kept a lid on volatility, leaving the greenback to trade where it settled after a Friday leap. It held at $1.2040 per euro and crept to a three-week high of 109.66 yen,” reported Reuters.

The dollar index, measured against six major currencies, remained at 91.210.

The steadying comes after a strong performance in March, when the U.S. economic rebound triggered expectations that increasing inflation could prompt the Federal Reserve to cut its supportive agendas, lifting bond yields and pushing the dollar higher against most other currencies.

“We remain bearish USD linked to peak U.S. exceptionalism, and a broadening global recovery elsewhere,” said CitiFX analysts Ebrahim Rahbari and Calvin Tse in a client note.

“We attribute the USD rebound late last week in part to noise around month-end flows, but note the risk for higher US rates to change the FX trajectory.

“Meanwhile, BRL and CAD remain among the favourites, while JPY was held back by rising rates, and several EMs by idiosyncratic headwinds.”

Moreover, Kamakshya Trivedi, a strategist at Goldman Sachs, noted: “The return of a ‘global’ rather than simply ‘U.S.’ reflation trade is the main reason we have seen the dollar index lose ground in April.

“In the months ahead, we should start to see an unwind of European Covid restrictions, and we expect further solid gains in oil and copper prices - which should keep the dollar on the back foot.”