The U.S. dollar is facing headwinds this morning, especially against commodity-based currencies and the British pound.
Overview
Overall, the U.S. Dollar Index is 0.2% lower, ending two days of gains.
The dollar was buoyant yesterday following strong retail sales data, followed by reassuringly dovish Federal Reserve. Minutes from the last FOMC meeting showed that policymakers are in no hurry to pull back stimulus.
We will continue to keep an eye on Treasury yields as a spike in borrowing costs can threaten the current bull market and potentially benefit the greenback. The yield on the 10-year Treasury is at 1.29%, after reaching a one-year high of 1.33% yesterday.
This morning’s economic docket is expected to show modest improvement in the labor market. Initial jobless claims are expected to show 770K Americans filed unemployment last week. While this would be better than the week prior, it is still a staggeringly poor number.
What to Watch Today…
- Weekly jobless claims at 8:30 a.m.
CAD ⇑
Much like yesterday, commodity-based currencies are continuing to enjoy a rally versus the U.S. dollar. The Norwegian krone is up over half a percent and the Canadian dollar ticked stronger. Almost 40% of U.S. crude production is now offline, causing Brent crude prices to rise to a yearly high of $65 a barrel.
The weather forecast for Texas should turn favorable in the coming days but getting output levels higher could take some time. Bloomberg News points out that operators will need to assess wells for damage, a process that could take weeks. In the interim, expect commodity-linked currencies to rise, albeit for a short time.
GBP ⇑
The British pound was the biggest winner overnight, pushing over half a percent higher against the U.S. dollar and reaching 11-month highs versus the Euro. The pound strength comes as vaccine distribution appears to be hitting its stride in the U.K. and the government looks to relax lockdown measures. While restrictive measures are likely to remain in place for the remainder of the month, there appears to be light at the end of the tunnel for the British economy.
Adding to sterling strength were comments by Bank of England policymaker Michael Saunders that threw more cold water on the idea of negative interest rates being introduced in the U.K. Saunders said that the central bank would need to give the financial sector a six-month period to get operationally ready for negative rates.
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