The US dollar moved lower in April. The EUR/USD pair breached the 1.21 boundary, and the main currency pair may be poised for further upside.
The CEE3 led the EM complex in April and enjoyed a significant recovery after a strong sell-off experienced in March. The Polish zloty and the Czech koruna gained almost 5 pct. against the greenback. In the G-10 space, the Norwegian krone outperformed once again.
The greenback unimpressed with a robust recovery
The US economy in the first quarter of this year grew at an annualized pace of 6.4%. Only at first glance, the result looks weaker compared to market forecasts and masks the dynamics of the rebound. If one delves deeper into the details of the publication, it turns out that consumption grew by more than 10%, with residential construction and corporate investment also red-hot. The main value of the index was lowered by the fact that the current production was not able to keep up with the exploding demand: inventories were very strongly reduced, and the deep deficit in foreign trade translated into a strong negative contribution of net exports. Moreover, positive news is also coming from the labour market: the weekly number of new jobless claims fell once again, reaching the lowest levels since the outbreak of the pandemic and coming in at about 200,000 lower than the average in March.
This is certainly not the end of an impressive series of data from the US. Currently, more than 140 million citizens have already received one dose of the vaccine and the economy is getting closer to full opening. The impact of the fiscal package, of which social transfers and the now famous $1,400 checks were a pillar, will also spread through the economy in the coming months. It definitely cannot be stated that the deferred demand has already been realized. Moreover, the condition of household finances is good, and the sentiment will be supported by the labour market's recovery. In April and May, the recovery should proceed at an express pace. In each of these months, employment growth is expected to exceed one million new payrolls. As a result, in this quarter, growth will assume double-digit values, which will allow GDP to return to pre-pandemic levels. However, this state of affairs does not impress the Federal Reserve, which intends to maintain full monetary support.
Given the current mild and dollar-negative monetary policy stance, currencies with strong ties to the business cycle should benefit from the spread of the recovery across the global economy: the entire emerging markets basket and the G-10 space euro and Scandinavian currencies. Investors will look for opportunities in currencies that have not yet made the rally resulting from the improvement in the pandemic situation and acceleration of the vaccination program. With the EUR/PLN exchange rate already flirting with 4.60, the zloty can boldly become one of them, but the door to strengthening will probably be opened only by resolving the issue of mortgage loans granted in francs.