The U.S. dollar gained ground after a strong New York factory survey showed that business activity had surged to a more than two-year high in February. The upbeat report bolstered optimism about the economic recovery and underscored the resilience of the manufacturing sector, lifting the greenback against a basket of major currencies. As investors continue to monitor the impact of the Covid-19 pandemic on global growth, the latest data from the Empire State Manufacturing Survey suggests that the U.S. economy is gaining momentum, spurring demand for the dollar as a safe-haven asset.
On Monday, the US dollar saw a rise following an increase in New York state factory activity in April, the first increase in five months. This bolstered expectations that the Federal Reserve will raise interest rates in May. Additionally, confidence among US single-family homebuilders improved for a fourth straight month in April, further boosting the dollar. The dollar index, which measures the currency against six major peers, rose 0.413%. This was due to the Empire State Manufacturing index growing to 10.8 from -24.6 in March, considerably higher than the expected -18 in a Reuters poll of 35 economists. Both the new orders index and the shipments index made substantial increases from recent months, according to the New York Fed. Futures trading has strengthened the probability of the Fed raising its lending rate to a range of 5% to 5.25% in May to 88.7% from 78%, following a two-day meeting. However, the outlook for US interest rates, in relation to the monetary policies and economies of other countries, can either augment or erode the dollar’s value. The euro fell 0.66% to $1.0926 compared to hitting a one-year high of $1.108 last week, with traders expecting further interest rate hikes from the European Central Bank. The yen was down 0.45% at 134.40 per dollar, as the Bank of Japan stuck with its easy-money policies. Jane Foley, Head of FX Strategy at Rabobank, commented that comments from the Bank of Japan suggested that there is no real reason for them to pull back from their ultra-easy policy. The Mexican peso lost 0.11% versus the dollar, trading at 18.04, while the Canadian dollar fell 0.25% versus the greenback to 1.34 per dollar.
In conclusion, the recent surge in the US dollar comes as no surprise given the impressive results of the New York factory survey. This report has instilled a sense of optimism in investors, encouraging them to put their faith in the US economy once again. While the global pandemic has certainly caused significant challenges and uncertainties, this recent development has provided a glimmer of hope for those hoping for a swift economic recovery. As we continue to monitor the markets and the evolving economic landscape, it will be interesting to see how the US dollar fares in the weeks and months to come.
