The speech of the Fed Chairman, Jerome Powell, provided strength to the US dollar. In particular, the national currency sharply surged in the global currency market.
On the morning of March 5, the US dollar confidently moved up against other global currencies. As a result, the Euro currency in the EUR/USD pair slightly fell to the level of 1.1956, failing to further rise. It should be noted that the USD strengthened against the EUR by 0.8% last night, while the US dollar index gained 0.7%. In addition, the price of the US currency has increased against the European one to the highest level recorded since December 1, 2020.
The positive data relative to February's US unemployment rate is also expected to add support to the US currency. Based on preliminary forecasts, it will maintain its position near the January figure of 6.3%. Earlier, the US labor market clearly fell: In December 2020, 227 thousand jobs were eliminated, and only 49 thousand were restored in January. Nevertheless, economists say that the dynamics have improved, as American companies have hired more than 180 thousand employees. This gave rise to the strengthening of the US labor market.
Traders, as well as investors, are worried about the impact of the employment report on the dynamics of the US dollar. But many market participants expect the indicator to improve. The positive sentiment is supported by the strong growth of the USD, which is boosted by the hopes of an early economic recovery in the United States. Fed's head, Jerome Powell, clearly stated in his speech that the US economy is able to withstand the growth of treasury yields. This factor also significantly supported the US currency. The high yield of US government bonds contributes to the growth of demand and forces investors to seek haven in the USD.
According to J. Powell, the regulator will maintain a soft monetary policy (MP) and large-scale asset purchases until the labor market noticeably improves. He said that this will take a lot of time, but there are no specific dates mentioned. At the same time, he made a calm reaction to the sharp growth in government bond yields caused by expectations of both inflation and GDP growth in 2021. Experts believe that the regulator does not need to restrain the growth of profitability.
A lot of market participants are surprised with how the US dollar is sharply rising. Traders and investors, who are worried about the unpleasant surprises from this currency, are surprised with its current strength. It should be noted that the dollar is growing contrary to the expectations of the market. Many experts associate its rise with the crisis during the recovery of the global economy.
The current situation causes disagreements in the financial markets, as it contradicts the large rates on the decline of the greenback in the derivatives markets. According to Ken Wexler, Acumen Management currency strategist, the US dollar's current growth is due to the fact that investors were ahead of the curve in 2020 and a more difficult-than-expected recovery in the global economy.
Therefore, its growth amid the increasing yields on US government bonds makes the latter more attractive compared to other currencies. Analysts at BofA Global Research believe that the United States will become the driver of global economic growth this year, which will stimulate capital inflows into the country and boost the national currency.
