The US currency at the beginning of March continues the strengthening we saw at the end of last week. The stronger USD also seems to be joined by increases in the major stock markets, a continuation of the upward trend in the oil market and a rebound in the cryptocurrency market.
The US Dollar Index appears to have rallied on Monday, surpassing 91 points, its highest closing level since February 4. Investors seem to be looking at falling Treasury bond yields and rising bond prices along with the prospects of a rapid economic recovery and more policy support to sustain the US economic recovery. The House of Representatives approved President Joe Biden's $1.9 trillion aid package, which includes an additional $1,400 check for most Americans. The bill will now head to the Senate.
As a result of the strengthening USD, the EUR/USD has fallen below 1.2050 as investors remain quite cautious ahead of key speeches from several European Central Bank officials, including ECB President Christine Lagarde. Among ECB board members, Yannis Stournaras openly called for an increase in the pace of bond buying on Friday. Philip Lane and Isabel Schnabel also signaled that the central bank stands ready to provide more support if rising yields hurt the euro zone's recovery.
The euro hit a one-month high last week on optimism over the end of restrictions and the reopening of economies. The topic of rising bond yields in Europe has already been raised. In the United States, Fed representatives have not yet addressed it. Therefore, the key question now may be how the divergence in the approach to this topic will look on both sides of the Atlantic.
On the macroeconomic data front, the published Eurozone manufacturing PMI was revised upward to its highest level in three years and came in at February 2021. 57.9 points. In January, the reading was at 54.8 points. Output and new orders rose along with employment, which improved for the first time in almost two years.
The latest data showed the second-largest deterioration in the timing of orders in the 24-year history of IHS Markit's publication of this indicator. On the price front, input cost inflation reached near its highest level in a decade, while output prices rose at their strongest pace since April 2018. Expectations continue to strengthen, with the latest survey shows that optimism has reached its highest level since mid-2012.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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