The US dollar dominates (Daily analysis 2.03.2021)

A sharp bounce of the US equity markets fails to harm the dollar as the Treasuries stabilizes. Manufacturing data surprised to the upside, and the euro is dragged lower by a dovish stance from the Governing Council.

Governor of the Bank of France, Francois Villeroy, stated that the ECB must react to any undue tightening of financial conditions and could lower the deposit rate if needed. Those comments resulted in further weakening of the common currency. The US dollar trades on the front foot due to another stellar reading of the ISM manufacturing index, which in February rose to the highest level in three years and came in strongly above expectations. Although new orders and employment grew, the advance was predominantly fueled by higher prices.

At the time of writing, the EUR/USD pair is eroding the 1.20 mark. The decline is driven by stronger short-term growth prospects of the United States combined with a faster vaccination process and dovish ECB. In the longer term, the US dollar should turn out to be vulnerable once again when the economic rebound gains momentum globally and massive fiscal expansion boosts dollar liquidity and propels debt levels. The GBP/USD pair failed to regain the 1.40 handle and turned lower, while the Antipodean currencies are the main underperformers. Emerging markets currencies decline as well, with the Russian ruble, the Mexican peso and CEE3 currencies among the underperformers. The latter group feels the pressure of another wave of COVID-19 infections, which will inevitably postpone lifting the epidemic restrictions.