Dollar Strengthened its Position as Risk Appetite Falls

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May 4, 2021

John Marley

The U.S. dollar prolonged gains as risk appetite fell with investors awaiting upcoming data and policy speeches for clues.

With main stock indexes treading water and bond yields firming a little bit, the greenback’s safe-haven appeal received a further boost in London trading.

Tuesday’s bounce helped to reverse losses sustained on May 3, after a dissatisfying U.S. manufacturing survey report, leaving the dollar 1% above a one-month low struck last week.

April’s headline survey numbers were lower than in the previous month. Nonetheless, the U.S. recovery remained on course with price pressures rising. The country’s central bank appeared to be in no hurry to tighten. Financial conditions are nowhere close to the level where the central bank would consider pulling back its support. New York Fed Bank President John Williams made that comment on Monday.

U.S. data due for durable goods orders as well as non-farm payrolls will provide more information about the economy. The market expectations are too optimistic and that factor could create pressure on the dollar.

The dollar index added 0.4% to 91.34, close to a near two-week high. The index dropped more than 2% in April.

The dollar gained 0.6% against the Antipodean currencies as well as 0.3% versus the yen, euro, and pound.

Dollar and pound

The Australian dollar fell as the country’s central bank sharply upgraded forecasts for the local economy. The Reserve Bank of Australia predicted no tightening it is super-loose policy until at least 2024.

The British pound dropped marginally to $1.3870 before a Bank of England meeting on Thursday. Analysts think that the central bank might announce a slowdown in its bond buying program.

Another factor is the upcoming Scottish parliamentary elections. The Scottish National Party (SNP) has a chance to win a majority in the Scottish parliament. The SNP pledged to call for a Scottish independence referendum. It won’t be easy to organize another referendum, as in the case of the first one, the U.K. government should give permission.