Dollar Remains Fragile Ahead of Employment Data
- Mar 7
- 3 min read
Updated: Mar 17
GBP : Sterling rises as BoE’s Mann rejects gradual easing approach
As Catherine Mann, a member of the Bank of England's (BoE) MPC, resisted a "gradual and cautious" approach to monetary policy easing, sterling rose against its main peers on Friday. At a research conference hosted by the Reserve Bank of New Zealand (RBNZ) on Thursday, Mann argued against the necessity for a moderate monetary expansion, which was the position taken by the majority of BoE officials during the policy meeting in February and during his testimony before the treasury committee of Parliament on Wednesday. Mann claimed that because of "substantial volatility" in international financial markets, especially from "cross-border spillovers," the basis for a gradualist strategy is "no longer valid." Governor Andrew Bailey and other BoE officials, on the other hand, reaffirmed on Wednesday the need for a gradual approach to "removing monetary policy restrictiveness," highlighting the likelihood that inflation persistence will not end "on its own accord."
During Friday's European trading day, sterling holds onto gains close to $1.2900 vs the US dollar. Ahead of the February Nonfarm Payrolls (NFP) report from the United States (US), which is scheduled to be released at 13:30 GMT, the GBP/USD exchange rate is strong. On Wednesday, however, BoE officials, including Governor Andrew Bailey, reaffirmed the need for a cautious approach to "removing monetary policy restrictiveness," highlighting the likelihood that inflation will not end "on its own accord."
Sterling maintains its gains against the US dollar during Friday's European trading session, hovering around $1.2900. The GBP/USD exchange rate is strong ahead of the February Nonfarm Payrolls (NFP) report from the United States (US), which is scheduled to be released at 13:30 GMT.
EUR : A significant re-rating is in progress
Here are some important lessons learned from this week's European developments that have spurred new market discussions: Germany's infrastructure fund might increase GDP by 1% a year if it is completely implemented. Instead of 1.75%, the ECB's ultimate rate for this easing cycle is probably 2.25%. The 10-year EUR swap rate, which is currently 2.70 percent, may rise to 3.50% as concerns about secular stagnation subside. The Eurozone's tougher monetary and fiscal policies have caused most EUR/USD estimates to move from $1.0000 to $1.0500 to $1.0500 to $1.1000. Strong support should appear around $1.0670/$1.0700, however the EUR/USD pair appears overbought and may struggle above $1.0850/75 in the immediate future. Investors are probably going to purchase on dips given this week's changes.
Future US tariff decisions in April may have an impact on a more comprehensive Euro reweighting. USD and CNY each have 15% weight in the ECB's trade-weighted Euro index, while GBP has 10% and CHF has 6%. Markets may shift their attention to EUR/CNH upside after EUR/USD. In the upcoming months, EUR/CNH may move above ¥8.0000, potentially hitting the 2023 high of ¥8.1200, given that China is already subject to 20% tariffs this year and most likely will be in the future.
USD : Dollar remains fragile
The events of this week have strengthened the attraction of foreign exchange as an asset class, with separate developments in the US and Europe reducing the disparities in interest rates, growth, and currency valuation. Similar to the investment slumps that preceded Brexit, policy uncertainty is eroding confidence in the US. But history indicates that a recovery is feasible once clarity is gained. Markets are now pricing the Fed's terminal rate below 3.50%, 45 basis points below last month's top, as a result of worse US data and declining stocks. Today's dismal jobs data might help justify this change. The consensus predicts a 4.0% unemployment rate and 160k job increases, but softer estimates point to a downside risk as the data is impacted by weather and changes in education financing.
Although DXY's 3.5% weekly decline indicates that long positioning isn't as high as it was in late 2022, the dollar is still vulnerable. Unless payrolls miss a lot, consolidation around 103.75–104.50 appears likely with 104.00 serving as support. The index might have already reached its year-end peak given recent events and DXY's significant European component.
