On Thursday the U.S. dollar traded shy of recent highs after its first back-to-back gains in two weeks as upbeat data bolstered expectations that the U.S. economy would recover from the coronavirus pandemic faster than most of its peers.
Bitcoin traded close to the new record high of $52,640 reached overnight, with its roughly 58% surge this month prompting some analysts to warn that the rally might be unsustainable. Government stimulus cheques helped U.S. retail sales rebound sharply in January, while industrial output and producer prices data also provided robust upside surprises.
Investors expect a further boost from Joe Biden’s proposed $1.9 trillion COVID-19 relief package, with the president meeting top labour leaders on Wednesday to drum up support for the plan. Meanwhile, minutes from the Federal Reserve’s policy meeting last month reinforced the central bank’s willingness to let the economy run hot while keeping monetary settings ultra-accommodative.
“As we have seen over recent weeks, the dollar has become increasingly cyclical as there is now a link to the pricing of Fed and expected tapering and probably too, that with volatility indices generally low we also have more room to focus on smaller relative differences and cross-asset correlations have come down,” said Mikael Milhøj, senior analyst at Danske Bank.
“Either way, retail sales was a good event study to underpin our view of US outperformance in H2 can support dollar. This is unlike last year, where positive surprises would always be dollar-negative, no matter the origin as it removed deflation risks.” The dollar index was off 0.15% at 90.748 on Thursday in morning trade in London after strengthening 0.2% overnight and 0.4% on Tuesday.
The gauge has gained about 1% this year, rebounding from an almost 7% slide in 2020 that extended to a 2-1/2-year low of 89.206 in early January. The euro gained 0.2% to $1.2065 after sliding 0.5% overnight, the most in two weeks. “With U.S. Treasury yields stabilising and the decline in equity markets moderate overnight, EUR/USD is set to consolidate and remain above $1.2000,” ING said in a note to clients.
The dollar was almost flat at 105.735 yen, following a pullback Wednesday after reaching a five-month high of 106.225. Sterling traded above $1.39 against the dollar and hit a new high against the euro of 86.70 pence. The pound is the best performing G10 currency against the dollar this year.