USD

The dollar rose on Friday following a fresh spike in Treasury yields as the prospect of economies emerging from year-long coronavirus lockdowns reignited inflation fears.

The market over the last few weeks has become increasingly more wary of possible inflationary pressures that could come as a result of pent-up consumer demand and the expanding vaccine rollout.

Friday’s US producer prices showed their largest annual gain in nearly 2 and half years. President Joe Biden signed a $1.9 trillion stimulus bill into law on Thursday and urged U.S. states to make all adults eligible for a coronavirus vaccine by May 1.

The dollar as a result was up against a basket of currencies including the pound & euro.US treasuries continued to be sold off with the yield on 10 year notes hitting a 1 year high. The market will be looking to the U.S. Federal Reserve’s policy meeting on Wednesday for any comments about rising yields. Anything less than a strong message of the Fed being very committed to maintaining favourable financial market conditions will likely see USD advance further. Any talk of monetary policy tightening could lead to dollar strength.

EURO

It is expected today that the eurozone finance ministers will pledge to continue supporting the economy with bond purchases throughout 2021 and 2022. This has been all but been confirmed by a draft statement that has been seen by Reuters News.

The Eurogroup ministers are also set to confirm support so far worth 8% of the eurozone gross domestic product in national fiscal measures and 19% of GDP in liquidity measures, or more than 3 trillion euros in total. They will stay as long as there is an acute health crisis in the eurozone.

The statements are meant to reassure markets and businesses that the eurozone will not start withdrawing support before a recovery takes firm hold and that it will safeguard investment.

The eurozone economy contracted 6.6% last year, its biggest recession so far, as a result of the lockdowns put in place to slow the spread of the COVID-19 pandemic since early 2020.

The Euro Commission expects growth of 3.8% this year and next, but public debt will rise above 100% of GDP on average in the 19 countries sharing the euro. Greece is already at 200% of GDP and Italy at 160%.

KEY Announcements

UK Rightmove HPI M/M – Actual – 0.8% previous- 0.5%
Eurogroups meetings – All day event