Biden’s 42 Days Ahead of Schedule – April USD Report

The Dollar Index, which tracks the U.S. dollar against a basket of major currencies, continued to strengthen and outperform most major currencies over last month. Currently, the U.S. dollar is above its 200-day moving average and trading at its strongest level since November last year (Fig. 1).

While the long-term trend remains downward, macroeconomic fundamentals are drawing a positive outlook which could keep the USD moving higher in the short term.

Figure 1: Dollar Index historical chart

This bright prospect of further USD appreciation is mainly supported by a confluence of optimism over improving U.S. economic data, a relatively successful vaccine rollout, and rising Treasury yields. The following chart (Fig. 2) shows the share of the total population that has received at least one dose of the COVID-19 vaccine. So far, the U.S. has vaccinated 28.4% of its population which amounts to over 95 million, meaning that President Joe Biden should reach his goal of 100 million shots around 42 days ahead of schedule.

Confident that his administration can speed up the inoculation at an even greater pace, Joe Biden announced in his first formal news conference that he would be doubling his administration’s vaccination rollout plan, pledging 200 million doses by the end of his first 100 days in office.

Figure 2. Shares of people who received at least one dose of COVID-19 vaccine, Mar 29, 2021.

Source: Official data collated by Our World in Data

As a result of the vaccination campaign, along with coordinated restrictive measures across the country, the number of new cases and deaths have reduced substantially since the beginning of the year (Fig 3), allowing for a gradual reopening of the economy to take place. Although the B117 variant is now likely to be dominant in the U.S., which may push up new Covid cases, reopening plans are unlikely to be cancelled.

Figure 3. U.S. Covid-19 cases. Source: Pantheon Macroeconomics

There is enough evidence to show that the gradual re-opening is making a material difference to the activity level in the services sector, as airlines emerge from the worst period in commercial aviation history and the demand for hotel rooms increases. Figure 4 shows a surge in passenger numbers, long before the whole economy is set to be reopened, which suggests that demand for travel will recover swiftly over the new few months. The demand is is also further illustrated in Figure 5.

It is clear that the advancement in vaccine distribution and burgeoning travel confidence have unleashed repressed demand. The recent activities have already created new jobs, with the initial jobless claims falling to 684,00 during the week ending March 20. While the numbers are still substantial, it is the first time that the claims have fallen below 700,000 in more than a year, and is at its lowest since the start of the pandemic. However, with this, the demand gives the services company room to start raising prices, contributing to the accelerating inflation rate of prices.

Figure 4. Airline Traffic is rocketing Figure 5. U.S. Occupancy reached another pandemic high.

Source: Pantheon Macroeconomics

All this economic data, along with the aggressive target of administering 200 million shots, will continue to boost hopes for a strong economic rebound, but with it comes concerns about increasing bond yields (Fig 6).

One question that market players may ask is:

"At what point will surge yields not influence the USD’s price?”

Figure 6. 10-year U.S. yields (right) against Dollar Index (left)