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Currencies Tumble As Stocks Erase Gains

By Kathy LienForexMay 10, 2021 05:40PM ET
www.investing.com/analysis/currencies-tumble-as-stocks-erase-gains-200579092
Currencies Tumble As Stocks Erase Gains
By Kathy Lien   |  May 10, 2021 05:40PM ET
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What started off as a strong day for risk appetite turned into losses for currencies and equities. The Dow Jones Industrial Average and NASDAQ hit record highs at the start of New York trade but shed their gains to end the day lower.
 
Currencies tumbled as well but reversed before stocks, as traders lost confidence in the risk-on rally. With no major economic reports to trigger today’s reversal, it was a typical exhaustion move. Investors were very optimistic ahead of Friday’s non-farm payrolls report. It disappointed in a major way and instead of selling, they continued to buy on the hope that weak jobs number meant no tapering.
 
Today, reality set in and they realized that without taper or talk of it, inflation could rise quickly. In fact, that was exactly what we saw, with the New York Fed’s survey of inflation expectations rising to its highest level since September 2013. This survey measures how much Americans expect to spend on homes, rent, gas and higher education. The increase tells us they expect prices to rise sharply in the coming months.
 
This rise in inflation expectations drove the U.S. dollar higher against the euro, the Japanese Yen, Swiss Franc, Australian and New Zealand dollars. While non-farm payrolls were disappointing, this week’s consumer price index and retail sales reports could beat expectations. Spending, in particular, is expected to rise only 0.2%, which is a very low forecast in our opinion, considering reopening of business activity, the sharp increase in wages and higher gas prices. Expectations for a stronger report could help the U.S. dollar avert further losses this week. 
 
There was still more demand for sterling and the Canadian dollar because the Bank of England and the Bank of Canada are expected to reduce monetary stimulus earlier than the Federal Reserve. Adjustments in monetary policy expectations had a big impact on currency movements on Friday and while the U.S. dollar recovered some ground, we don’t expect that fundamental driver to be forgotten. 
 
Keep an eye on the euro because pandemic restrictions are beginning to ease. Italy began lifting restrictions two weeks ago, but restaurants in Spain reopened this weekend as the curfew and travel ban ended. France plans to ease restrictions on restaurants next week and it may not be long before Germany follows suit. We said often that when the euro area restrictions are relaxed, demand for euros will return as the recovery gains traction. Germany’s ZEW survey is due for release tomorrow, and we are looking for confidence to improve as stocks hit record highs and vaccination rates increase in Europe. Any pullback in EUR/USD should be limited to 1.2050.
Currencies Tumble As Stocks Erase Gains
 

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Currencies Tumble As Stocks Erase Gains

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Comments (12)
Luqman Firdaus
Luqman Firdaus May 13, 2021 9:01PM ET
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I love you
James William
James William May 12, 2021 2:54PM ET
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Hello Kathy
Focko Mitchell
Focko Mitchell May 11, 2021 5:09PM ET
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Fikret Ehmedov
Fikret Ehmedov May 11, 2021 12:57PM ET
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cok iyyi
Charles Ngari
Charles Ngari May 11, 2021 9:24AM ET
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we expect more selling of stocks today as people prepare for tomorrow's data .
William Bailey
William Bailey May 11, 2021 12:06AM ET
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Fed negligence and cavalier moves
Sumit Goyanka
Sumit Goyanka May 10, 2021 9:47PM ET
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pullback limited to 1.2050 ... cmp 1.2130
Solomon Iraoyah
Solomon Iraoyah May 10, 2021 9:47PM ET
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Really
Karim Kime
Karim Kime May 10, 2021 8:38PM ET
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Hello
FATME sahraie
FATME sahraie May 10, 2021 7:00PM ET
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what is this
FATME sahraie
FATME sahraie May 10, 2021 6:57PM ET
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hi,there nice to meet you
Faruk Ahmed
Faruk Ahmed May 10, 2021 6:57PM ET
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good
Kareem Sultan
Kareem Sultan May 10, 2021 6:42PM ET
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i respect your way in writing and your valuable openion
Widya Batin
Widya Batin May 10, 2021 5:59PM ET
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everything is frozen in 4x
فاضل سلامی
فاضل سلامی May 10, 2021 5:59PM ET
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