The dollar rally continues but it's way too soon to be talking about gamechangers
Today's Markit PMI survey of the service sector and manufacturers showed one of the strongest responses in years, despite a raging pandemic. The report also showed some of the highest price pressures in the survey's history and that's leading to some questions in the market about whether the Fed will be able to keep interest rates pinned at zero through 2023.
Ultimately though, it's early. High frequency indicators are slowing and virus restrictions are falling into place. At the bottom of the hour, NY governor Cuomo may even announce some more.
This looks like more of a short-term dollar pullback than a big fundamental re-think. The US consumer is a powerful force but the whole world is coping with the pandemic and fiscal support is positive throughout the developed world, generally moreso than in the US.
What the US has shown is a willingness to stay open when other countries close. For general public health, that's a debatable course of action but one the economic side, it's positive.
As for this move, I think we've seen an extra leg through the London fix but I don't see it as a sustainable move. We're talking about one data point and even the bond market is tepid, with 10s only up 3.6 bps to 0.86%.
Ultimately, this looks like a big of a squeeze and squeezes can overshoot quickly so you need to manage risk. If 1.1800 doesn't hold in EUR/USD it could be another leg lower.
