Explosion of enthusiasm does not help the dollar (Daily analysis 6.04.2021)

Rapid vaccination progress reaching three million people a day, the prospect of a fully open economy soon, and a powerful fiscal stimulus – that combination translates into a strong acceleration of the US economy.

At the beginning of the quarter, the evidence of it translates into a bursting appetite for risk. First and foremost, the S&P 500 index continues its rally to the new all-time highs after crossing the 4,000 point threshold, but the quarter is off to an excellent start not only for the zloty but for the rest of the emerging economies. The EUR/USD pair rebounds above 1.18, and the GBP/USD exchange rate exceeds 1.39.

During the first quarter of this year, the supremacy of the US economy supported the dollar. We believe, however, that this was a transitory force, a rebound from the previous year's depreciation. And under the influence of the growth rebound spreading through the global economy, the demand for the US currency will weaken. Perhaps the last few days are signs of such a turn of events, but it takes two to the tango. For the dollar to start declining steadily, there is a need for positive factors on the side of other currencies, primarily the euro. However, for the time being, the single currency lacks these. We should also remember the unique conditions on the financial markets during the Easter holiday. This means that it is too early to reliably define that the retreat from the dollar in recent days is the beginning of a new trend.

Fueled as the US economy

Since the beginning of the quarter, a series of key publications reflecting the state of the world's largest economy has indicated that the expected recovery has been materializing with great force. Let's summarise. First, non-farm payrolls added more than 900,000 jobs in March. That's the greatest change in employment since last August. If full unfreezing occurs this quarter, it is reasonable to assume that the barrier of one million job gains will be crossed in April and/or May and that employment will return to pre-pandemic highs within the year ahead.

Moreover, the ISM indexes, i.e. the most important economic activity indicators, are at record highs. This applies first of all to services, where the sentiment is the best in the index's history, i.e. since 1997, probably because the second fiscal package (1.9 trillion USD) is based on social transfers. Industry, in turn, is no exception to global trends: the sector is red-hot and, in addition to the strong growth in new orders, there are also delays in production and problems with the availability of components, which points to growing price pressures.