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Vaccine Roll-out Aids US Dollar’s Gains

March 29, 2021


The dollar had a great start to the week, almost reaching milestone peaks against the euro and yen early in Monday’s session, as US economic strength and haste of vaccine roll-outs have been much than in Europe, attracting investors to the USD.

The euro (EUR) sat at $1.1788, slightly higher than last week’s four-and-a-half-month trough of $1.1762 and well below its 200-day moving average of about $1.1866. It’s heading for its worst month since mid-2019 as Europe’s faltering vaccination programme runs into a wave of new infections, a bearish signal as positioning data shows investors remain heavily long on euros.

The yen (JPY) stood just shy of strong resistance and Friday’s 10-month low of ¥109.85 to trade at ¥109.77 early in the Asia session. The yen is sensitive to gaps in returns on U.S. and Japanese government debt.

This year’s 76-basis-point rise in 10-year Treasury yields, as the US economy rebounds, has opened the gap to its widest since last February. That has drawn Japanese investment, which has in turn helped push the yen down nearly 6% for the quarter.

The US dollar index (DXY) increased 0.8% to $92.773 and the USD steadied against the risk-sensitive AUD, NZD and GBP, having fallen late in Friday’s session.

Over Q1 this year, the USD has posted a 0.8% loss against the GBP, which has been supported by Britain’s speedy vaccination roll-out, a 0.8% gain on the AUD and a 2.7% gain against the NZD, which has been hit by housing market reforms.

The AUD was last down 0.1% at $0.7631 in Monday’s session, the NZD fell by the same margin to $0.6989, while GBP slipped 0.1% as well to $1.3784.

US jobless claims fell to a one-year low last week and President Biden said he would double his vaccination goal, after surpassing 100 million shots 42 days ahead of schedule.

In contrast, European inoculations have plagued by supply problems and safety concerns. Last week, the head of Germany’s Robert Koch Institute for infectious diseases also warned a third wave of the virus could be the worst so far, and on Sunday Chancellor Angela Merkel raised the possibility of curfews to bring it under control.

Besides infection and inoculation counts, investors looking to Purchasing Managers Index figures due midweek and for some details of US President Biden’s infrastructure spending plan. The main data to follow however will be from the US non-farm payroll figure this coming Friday.

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