USD Liquidity Improving Despite Better Than Expected Jobs Data

on Mar 9, 2021
Updated: Dec 19, 2022

Yesterday, the stock market in the United States woke up to the news that the U.S. Congress approved a new round of fiscal stimulus. We may say that it was already priced in, but what really surprised me was the insistence of delivering more stimulus when the economy already bounced from its lows. 

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As pointed by the NFP report from last Friday, the U.S. economy added more jobs than expected, and the unemployment rate declined too. Moreover, positive revisions for the previous months added fuel to the economic recovery. It showed that the recovery is faster than political negotiations needed to deliver fiscal stimulus.

Another thing that struck the eye on the NFP report was that the services industry climbed back from its pandemic levels. 513k jobs were created by the services sector, another confirmation of the long-lasting trend that shows the U.S. is a service-based industry.

A Wave of Fresh Dollars to Hit Financial Markets

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Despite the positive economic data and future perspectives, the issuance of U.S. Treasuries will outpace the demand in the months ahead. More precisely, the new dollar liquidity in the market will add more pressure on prices and inflation is expected to rise again.

Curiously enough, despite the news from Congress over the weekend, the U.S. futures did not trade higher. Only after London opened, some news came out of the United States. One was from the Treasury department. Janet Yellen, the Secretary, said that if inflation does come, as it is expected, there are tools to deal with it. In other words, green light from the Treasury for the new fiscal stimulus.

Another one was from David Tepper. The investing legend said in an interview that he is very bullish on the stock market. Moreover, not even valuations appear high, especially considering the expected economic growth in the near future. Some voices call even for a 7% GDP growth in 2021 – surely not impossible, giving the vaccination rate and the number of new jobs created.

The new stimulus will further put pressure on the dollar. The months ahead are critical for the dollar, already weakened significantly in 2020. It recently recovered some of the lost ground, but the move higher is not seen across the FX dashboard and is uneven. For example, while the EURUSD dropped close to 1.18 from 1.23, the GBPUSD remains close to the 1.40 level and the AUDUSD close to its recent highs.

All in all, the months ahead are critical for the dollar. If it manages to survive the new wave of selling, it may bounce later in the year. Until then, investors need to accommodate a new round of fiscal stimulus and improved USD liquidity.


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