Thanks to reopening of restaurants and bars, the U.S. economy is gaining momentum and heading into spring on solid footing. U.S. companies added 355,000 jobs last month, nearly two times expectations. But what’s even more remarkable was the upward revision to January’s report. Initially only 49,000 jobs were reported, but U.S. companies added 166,000 jobs, for a total of 545,000 new jobs over the last two months. With more than two-thirds of February job growth attributed to the food service industry, it is clear how much impact less restrictions can have on the economy and what the U.S. can expect in the coming months as more Americans are vaccinated. The leisure and hospitality sectors will snap back and along with it, more job growth.
On March 14, the extra $300-a-week unemployment benefit will expire. The White House and Congress are committed to extending this aid. And if they want to avoid a lapse, the stimulus package needs to be passed in the next 10 days. When an agreement is made, the announcement could provide another jolt to the stock market. But this time around, the U.S. dollar could fall as more fiscal spending reduces the greenback’s appeal.
Progress on the stimulus deal will be the most important driver of U.S. dollar flows in the coming week along with February’s consumer price report. CPI has not been a big mover for currencies over the past year, but with rising inflation expectations driving the volatility in the bond market, investors may be particularly sensitive to inflation trends.
The European Central Bank and Bank of Canada monetary policy announcements will also be in focus. No changes are expected from either central bank, but investors are keen to see If the central banks’ concerns about rising yields turns into stronger language or more action. Slow vaccine rollout, ongoing restrictions and new increases in coronavirus cases in Italy suggest that the Eurozone will lag the U.S. recovery. EUR/USD was the worst performing major currency pair on Friday, and the prospect of ECB dovishness could drive the pair down to the 200-day SMA at 1.18.