All of the major currencies trended high in the beginning of week as traders kept driving the U.S. dollar lower.
Even though the following big events couldn’t lift the dollar higher – the treasury yields announcement, sell-off in U.S. stocks, strong payrolls and retail sales reports – there is nothing to worry about, indeed. For the past few months, traders and investors have been pricing in the U.S. economic rebound and, taking in account the fact that more than half of the U.S. adult population has recently received at least one COVID-19 vaccine shot, the U.S. currency will undoubtedly see a strong growth by the second quarter.
With this being said, traders have also been piling into the reflation trade since the beginning of the year, and that trade is growing tired. According to some reports, U.S. dollar net shorts are at their lowest level since June 2018. The most significant risk for the U.S. dollar is quicker vaccine rollouts and rapid recoveries in other countries, which is only a question of time.
The U.S. dollar prompted currency activity this week, so that the following currencies are still closely watched by investors this week – the EUR, GBP and the CAD. EUR/USD traded above 1.20 for the first time since the beginning of March.
The European Central Bank is scheduled to meet this Thursday, just before April PMIs are shared. Germany’s Bundesbank noted that economic output dropped in the first quarter and it’s very unlikely that France and Spain will avoid contractions.
The Canadian dollar touched a month high against the U.S. dollar before giving up its gains to finish the day in the red area. The Bank of Canada, which is scheduled to meet on Wednesday, is in a similar boat as the ECB.
COVID-19 cases are soaring, while the significant part of the country is under a strict lockdown. As opposed to the Eurozone, data hasn’t been that bad. Employment rates grow fast, the housing sector is also strong while the manufacturing activity is increasing. Although stricter limitations could affect the demand, additional data rather strengthens than weakens the BoC’s confidence.
As of the past couple of weeks, restrictions have been significantly eased and these measures are expected to provide a big boost to the recovery. Sterling is thought to outperform other currencies this week as we are seeing strong numbers in the majority of reports.