Strong employment data from the United States prompted traders to anticipate an early rate hike from the Federal Reserve. This is because Treasury yields, despite declining quite recently, remained at local highs.
Demand from emerging markets also dropped very sharply this March. In fact, according to EPFR Global, the volume of funds in these countries fell to less than a third of the level last February, thereby ending the first quarter with a very large outflow. Morgan Stanley confirmed this bearish scenario and mentioned that "the slow pace of vaccine deployment could result in GDP growing more slowly than the United States." If this happens, the dollar will continue to have stronger upward potential than other currencies.
In the meantime, aside from the upcoming meeting this week, the International Monetary Fund will publish updated forecasts for the global economy, which, according to managing director Kristalina Georgieva, will be much better than the previous projections. The meeting, meanwhile, will discuss if the Debt Service Suspension Initiative of the World Bank will be extended.
Reports also say the IMF intends to launch a new plan worth $ 650 billion in order to provide more assistance to poor countries hit hardest by the coronavirus pandemic. US Treasury Secretary Janet Yellen told the Congress last week that the Biden administration supports it.
But while the US is slowly emerging from the COVID-19 crisis, the European Union, on the contrary, sinks deeper. According to the latest reports, many countries are under lockdown again, albeit not as extensive as it was during the first and second pandemic waves. As a result, economic outlooks are deteriorating. For example, the French GDP is expected to recover much lesser than previously expected. Finance Minister Bruno Le Maire said it will shrink from 6% to 5% this year, as many stores and educational institutions were closed to stop the spread of the virus. French President Emmanuel Macron tried to avoid implementing such a decision, but was forced to last week because of the increasing infection rate.
In terms of vaccination, many sports facilities were set as centers during the Easter holidays. Thousands of people spent this period lining up to be vaccinated, but some cities, Madrid for example, stopped giving shots in order for the staff to have some rest.
With regards to macro statistics, the US Department of Labor reported last week that nonfarm payrolls rose by 916,000 this March, much higher than the expected 647,000. Apparently, the strong increase in other indicators affected the labor market positively. Thus, employment in the leisure and hospitality sector jumped by 280,000, while employment in the construction sector rebounded by 110,000. There's also a significant increase in public sector employment.
Such drove the unemployment rate down to 6.0%, which in line with economists' forecasts. Unfortunately, average hourly wages also fell by 0.1% ($ 0.04), so it is now at $ 29.96. Annual wage growth also slowed to 4.2%. But given the support measures provided by the US government, these figures do not bother investors much.
Therefore, in the EUR/USD pair, volatility will remain low today, so euro bulls need to push the quote above the 18th figure to see a larger jump towards 1.1840 and 1.1890. But if the quote returns to 1.1750, the euro will collapse to 1.1710.
As for the GBP/USD pair, as long as trading is carried out above 1.3800, the pound will continue to trade upwards, plausibly in the direction of 1.3850, 1.3915 and 1.4000. But if the quote drops below the 38th figure, then the pound will most likely collapse to 1.3760 and 1.3710.
