Dollar Under Pressure as Eventful Week for the US Begins

April 12, 2021
  • US Congress returns from recess to begin work on the infrastructure package; there will be heavy US Treasury issuance this week; the March budget statement today will serve as a stark reminder of the costs of aggressive fiscal stimulus
  • German political intrigue bears watching; eurozone reported strong February retail sales; weekly ECB asset purchases will be reported; the UK took another step towards reopening restaurants, pubs, and shops
  • Japan reported firm data overnight; Japan’s vaccine rollout only now begins in earnest; China reported strong March new loan data

After the dollar got some traction Friday, it is coming under pressure again as the new week begins. With US data expected to come in strong this week, we believe the dollar’s rise can continue. DXY found some support last week near 92 but is retesting that today. Likewise, the euro rally ran out of steam above $1.19 but is retesting that today. Sterling has rebounded back towards $1.38 after finding support at the March 25 low near $1.3670. Lastly, the USD/JPY bounce has run into resistance near 110 and is trading back towards 109 today.



US Congress returns from recess to begin work on the infrastructure package. President Biden will meet with centrist lawmakers from both parties today in an effort to drum up bipartisan support for his $2.25 trln initiative. The House and Senate will reportedly work on parallel tracks, with committees in both starting to write and vote on transportation and taxation provisions in the coming weeks. It has not yet been decided whether the plan will be broken into several bills or voted on as one massive package. As talks continue over the coming weeks, more details should emerge even as the size and scope of the plan will likely shift due to the horse-trading. However, the bottom line is that fiscal stimulus in the US will be much larger than what was expected at the start of the year.

There will be heavy US Treasury issuance this week. These include a $58 bln 3-year note auction and a $38 bln 10-year note auction both today, followed by a $24 bln 30-year bond auction Tuesday. Keep an eye on indirect bidders, which largely represent foreign buyers. At last month’s auctions, this share was 47.8% for the 3-year, 56.8% for the 10-year, and 60.6% for the 30-year. Bid-to-cover ratios should also be watched. At last month’s auctions, this ratio was 2.69 for the 3-year, 2.38 for the 10-year, and 2.28 for the 30-year. Auctions come ahead of US CPI and retail sales data this week that are expected to show continued strength in the US economy and so it will be interesting to see how investors approach this issuance.

The March budget statement today will serve as a stark reminder of the costs of aggressive fiscal stimulus. A deficit of -$658 bln is expected. If so, the 12-month total would rise to another all-time record of -$4.1 trln. It is noteworthy that Biden aims to finance the infrastructure bill through corporate tax hikes and not borrowing. This is perhaps one major reason why US bond yields have stalled out despite another massive spending bill in the pipeline. That said, string growth and an improving labor market should eventually feed into another leg higher for US yields. Rosengren speaks today and the Fed continues to stick with its dovish messaging ahead of the April 27-28 FOMC meeting.



German political intrigue bears watching. A split is forming between Merkel’s Christian Democratic Union (CDU) and its Bavarian sister party Christian Social Union (CSU). The CDU has nominated Armin Laschet to succeed the outgoing Merkel, while Markus Soeder has just joined the race for the CSU nomination. The two parties typically field a joint candidate for chancellor and so Soeder’s entry complicates things. Both parties are holding leadership meetings today. If the CSU supports Soeder over Laschet, things could get a bit messy and would require action by their joint parliamentary caucus. Polls suggest that support for the CDU/CSU alliance is falling ahead of September elections and so their choice to replace Merkel will be very important.

Eurozone reported strong February retail sales. Sales jumped 3.0% m/m, nearly double the expected 1.7% m/m and up from a revised -5.2% (was -5.9%) in January. The widely anticipated Q2 improvement in the eurozone economy may not be as strong as expected in light of the slow vaccine rollout and continued lockdowns in the major countries. Stay tuned.

Weekly ECB asset purchases will be reported. Last week, the ECB reported net purchases of EUR10.6 bln, about half the pace seen the two weeks previous. Friday was a holiday that week and last Monday was also a holiday, which will lead to lower than usual purchases for both those weeks. The ECB account of the March meeting shows that the accelerated pace of purchases was seen as temporary. We expect the accelerated pace to be maintained until at least the June meeting, when the ECB will likely reassess its program.

The UK took another step towards reopening restaurants, pubs, and shops today. This comes after a nearly 100 day lockdown and may lead to a surge of pent-up demand. The travel ban will remain in place but reports suggest the government will decide by early next month whether its citizens can begin traveling abroad again. The Department for Transport said that at a minimum, travelers will need to buy a two-test package that typically costs around GBP220 per person or even higher. There are lingering concerns that the faltering UK vaccination program will lead to a setback for the economy, but that may be too pessimistic. There may be some delays to full reopening but not a derailment.



Japan reported firm data overnight. March PPI rose 1.0% y/y, double the consensus and up from a revised -0.6% (was -0.7%) in February. This was the first positive reading since February 2020. Elsewhere, March machine tool orders surged 65.0% y/y, nearly double the February gain of 36.7% y/y. This was the biggest jump since 2011. While base effects played a role, the 21% m/m gain is nevertheless very impressive.

Of note, Japan’s vaccine rollout only now begins in earnest. Vaccines are now available for those age 65 years and older. Vaccine chief Kono said the pace of vaccinations is unlikely to pick up until May. The government has so far declined to set any schedule or timetable for getting the nation vaccinated. While lagging vaccination programs in the US and other countries, Japan’s economy will nevertheless benefit in the coming weeks and months.

China reported strong March new loan data. New loans rose CNY2.7 trln vs. CNY2.3 trln expected and CNY1.36 trln in February, while aggregate financing rose CNY3.3 trln vs. CNY3.7 trln expected and CNY1.7 trln in February. Banks lent a record CNY7.7 trln in Q1 and we had anticipated a strong March reading after recent reports that the PBOC asked the major banks to keep new loans in 2021 at roughly the same level as last year. As such, loan growth is expected to slow in the coming months. While this will result in slower growth, it’s clear that policymakers are focused on deleveraging and rebalancing the economy this year.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

This browser is not fully supported by our public website and may not display or function as expected for this reason. Please note, the Infuse Portal and BBH client applications fully support the IE 11 browser.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction