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US dollar momentum continues

USD - United States Dollar

Demand for the US dollar continued to rise for the third straight trading day. The US Dollar Index, which measures the value of USD against its major trading pairs, rose a fifth of a percent overnight and reached its highest level in two-months.

This morning, USD gained the most against EUR. The EURUSD pair fell to 1.202 this morning and its lowest level in over a month. At the start of January, EURUSD just about touched 1.23.

To add more umph to USD, the US Congressional Budget Office yesterday said that the economic expansion that began in mid-2020 will continue. Specifically, real (inflation-adjusted) gross domestic product is projected to return to its prepandemic level in mid-2021 and to surpass its potential (that is, its maximum sustainable) level in early 2025. In CBO’s projections, the unemployment rate gradually declines through 2026, and the number of people employed returns to its prepandemic level in 2024.

Key Movers

GBPUSD hit 1.3755 yesterday morning, the pair’s highest level since May 2018 as vaccine rollout news continued to support the pound. It has retraced a touch since, and it continued to hover around 1.37. While the pound may have dropped against the dollar, the fall compared to the euro was much more muted. Indeed, GBPEUR was headed back towards the 1.1350 handle we saw yesterday morning as the European Union’s vaccine program lags those of the UK and US. If the pace of UK vaccinations continues to curve upwards, then we should expect a strong rebound in GDP for the second quarter of this year.

The Australian dollar tracked sideways through much of Monday, bouncing between support and resistance as investors continue to grapple with short term COVID headwinds. Having touched intraday lows at 0.7605 the AUD crept higher through the domestic session touching highs at 0.7662 before drifting back toward intraday lows overnight amid broader US dollar gains. While Equity markets rebounded, recouping losses suffered in the wake of the GameStop saga a shift in correlation between equity market volatility and currency market movements meant the AUD failed to capitalize on gains, instead forced lower by concerns vaccine rollouts will be delayed and US fiscal stimulus will be diluted.

Expected Ranges

EUR/USD: 1.201 - 1.208 ▲

GBP/USD: 1.361 - 1.370 ▲

AUD/USD: 0.756 - 0.765 ▲

USD/CAD: 1.278 - 1.286 ▼