US dollar rallies, Suez Canal remains blocked

US dollar trades at four-month highs

The mighty US dollar is pushing higher, hitting fresh four-month highs. Optimism surrounding an EU-UK vaccine truce is being overshadowed by rising concerns over the global economic outlook as Covid cases rise.

Federal Reserve Chair Jerome Powell and US Treasury Secretary Janet Yellen expressed confidence in the US economic recovery on the second day of their Congressional hearing. The upbeat outlook highlights the divergence between the US and other regions such as the Eurozone, where Covid cases are on the rise.

The euro continues to hover around multi-month lows versus the greenback, despite recent data revealing encouraging trends. Yesterday’s PMI data showed business activity was back in expansionary territory, while today’s GfK German Consumer Climate Index pointed to confidence rising firmly in April. The GfK index rose to -6.2, up from -12.7 in March.

The sluggish vaccine rollout is the biggest threat to the common currency as a third Covid wave sweeps across the region. Attention is now firmly on the virtual EU leaders meeting, where they are set to discuss the resurgence in Covid and address the inadequate vaccine programme. Failure to address the issue effectively over the coming days could see the euro tumble towards 1.17.

Suez Canal not hindering sentiment – yet

Traffic along one of the world’s busiest trade routes has been suspended amid efforts to dislodge a wedged container vessel that ran aground yesterday. For now, the markets are taking one of the worst shipping jams in years in their stride, despite the fact the canal handles 12% of the world’s traded goods each day. Hopes of a rapid solution are keeping market sentiment steady for now. However, the longer that this goes on, the larger the impact on global trade will be, and the more likely we will start to see the impact on risk appetite.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.