FX Market View #9

By the completion of the first full month in the second quarter, the Dollar index effectively unwound the March gains. This appeared to be the new pattern for the Dollar during April as the Dollar failed to capitalise on the expanding US economy. There have been signs of relief for the Dollar during periods of jobs growth. For example the greenback did reverse or consolidate growth trends around the release of US employment data. Therefore, the technical picture does indicate that greenback has been stretched so a near-term recovery is waiting. During the last week of the month the Dollar did trade heavily, but rebounded coming into the weekend.

Looking at the global data for economic growth, the preliminary reports on business and consumer confidence are positive for the second quarter of the year. During April the estimates for the Q1 data had been release by the US, China and the Eurozone, together covering over two thirds of the world’s economy. Expected data releases during May will likely remain strong. One of the key reports to be released at the end of week is the US April employment data, which is anticipated to project large employment growth. Positive US employment data has recently translated to Dollar strengthening, and the unemployment rate is expected to fall to 6 percent.

There will be a number of key data reports for the week, with the primary economic release being the US employment report on Friday. On the political scene the local elections in the UK will be the headliner for the week. Voters will be assessing how the government has managed the pandemic as well as the UK’s economic post-Brexit outlook. The Bank of England meeting should provide the market with information on how the economy is responding to the vaccine rollout, and its gradual re-opening from the extended lockdown. During the past month the UK growth data has been positive giving the BOE the opportunity to indicate that a recovery is underway.

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