Leaders out of breath (Daily analysis 13.04.2021)

This quarter, the pound suddenly lost its role as investors' favourite and found itself among the weakest of the main currencies. The dollar is facing a similar fate.

They became the victim of their own success, and at the extremes, corrections in quotations may spread panic and cause an effect comparable to a snowball. The advantages of the British currency in the form of a rapid vaccination process (each adult is to receive at least one dose by the end of July) and positive consequences for the economic situation should guarantee investors' sympathy and translate into the growth of the pound for some time, especially as long as the euro is deprived of any arguments.

The dollar may come back from ashes

In April, investors turned their backs on the dollar. This is despite a series of data that have raised hopes that the US GDP will grow this year by more than 7%. In a broader horizon, we assume the weakness of the US currency, among others, is due to the maintenance of the soft policy by the Federal Reserve, the impact of the burden in the form of a gigantic increase in debt, but most of all the more widespread rebound in global economic activity. In other words, the currencies that benefited from the faster progress of vaccination and the prospect of an imminent loosening of restrictions (dollar, pound) have already largely exhausted their potential. However, recent declines in the dollar may prove difficult to sustain. A marathon of macroeconomic releases is underway, the most important of which, namely consumer inflation and retail sales, may become a trigger for investors to once again tug the rope with the Federal Reserve and contest the promise that the monetary stimulus will not be put off anytime soon.

In this context, it is worth noting the rather surprising position of James Bullard, seen as one of the advocates of mild policy. He stated that achieving collective immunity (vaccinating 75-80% of the population) will not only be a great support for the economy, consumer sentiment and business, but should also allow the debate to begin on how the Federal Reserve should exit its crisis mode, i.e. develop a strategy of gradually reducing the pace of asset purchases (at the moment a minimum of 120 billion USD per month). Currently, the USA is on its way to reaching the mentioned vaccination level around the middle of the year, and by that time, it is also possible to regain another 2.5 million jobs lost during the pandemic. Therefore, it cannot be ruled out that the debt market will experience strong reshuffling soon. Not only macroeconomic data, which should confirm that the economic situation is already gaining momentum, will be important for US bonds and numerous public speeches of decision-makers, including the most important trio of Jerome Powell, Richard Clarida and Lael Brainard. As a result, a rise in the EUR/USD pair towards 1.20 is unlikely. The main currency pair's quotations remain in no-man's territory and should stabilize after returning to the middle of the volatility range.