Dollar is a tough nut to crack. Forecast as of 08.03.2021

Weekly US dollar fundamental forecast
Jerome Powell is a tough nut to crack. The US bond market continues to test the Fed’s strength. A strong report on the US employment for February has sent the Treasury yield above 1.6%, the highest level since February 2020, strengthening the US dollar. The EURUSD rate went down in a momentum below 1.9. Only the S&P 500 price rise prevented the euro bears from driving the price lower.

Investors wonder if the Treasury yields are high enough to encourage the Fed to take active steps. The US unemployment rate in February was down to 6.2%, nonfarm payrolls added 379,000 new jobs, and the January data have been revised up. Therefore, the Fed should start speaking about monetary normalization. On the other hand, there are 9.5 million fewer jobs in the United States than before the pandemic. The labor market has a long way to recover, and the Fed prioritizes financial conditions when making decisions. The financial conditions in the US suggest that the Fed could still remain passive for a long time.

Dynamics of financial conditions and 10-year Treasury yield

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