US dollar slips, consolidates recent gains, but outlook still upbeat

NEW YORK: The dollar fell on Thursday, consolidating recent gains that pushed it to nearly three-year highs during the first quarter, but the outlook remained upbeat in the wake of solid US economic data and accelerated vaccine rollouts.

The US currency gained 3.6% against a basket of six major currencies in the first three months of the year, its best quarterly performance since June 2018, with investors betting on a swift and robust economic recovery.

"The steady buck is here to stay unless you see tremendous progress in other regions," said Juan Perez, FX strategist and trader at Tempus Inc in Washington. "COVID is not over, we are just scratching the surface of this elimination campaign."

A report on the US manufacturing sector showed a stronger-than-expected reading of 64.7 in March, the highest in more than 37 years. That was offset, though, by slowing construction spending, which fell 0.8% in February, and an increase in US jobless claims in the latest week.

In midmorning trading, the dollar index slipped 0.1% to 93.077, not far from a five-month high of 93.439 reached on Wednesday.

The dollar slipped a bit after the jobless claims report, with claims of 719,000 in the week ended March 27.

"The initial jobless claims rising more than expected is a downer since there was hope for less joblessness, which is the biggest problem overall in this COVID-19 economy," said Tempus' Perez.

The dollar index's gains in the first quarter came as the euro, the biggest component in the index, struggled on concerns the euro zone's economic recovery is being hampered by a third wave of COVID-19 infections.

France's President Emmanuel Macron ordered the country into its third national lockdown and said schools would close for three weeks. The euro zone also lags the United States in vaccination programs.

Sentiment toward Europe, though, received a boost when data showed euro zone monthly factory activity growth galloped at its fastest pace in the nearly 24-year history of a leading business survey.

The euro was last up 0.1% at $1.740.

The dollar was flat against the yen at 110.67 yen, after ending March with its biggest monthly gain since November 2016. It rose as high as 110.97 on Wednesday, the highest in a year.

China's onshore spot yuan finished the domestic session at 6.5739 per dollar, its weakest close since Nov. 30. Data showed China's factory activity in March expanded at the slowest pace in almost a year.

While currency trading is expected to slow toward the Easter holidays in many parts of the world, the dollar could gain if key US economic indicators surprise on the upside.

Investors are now looking to Friday's non-farm payrolls report. Economists expect the US job data to show an increase of about 650,000 payrolls in March, while the latest chatter in the market is it could swing higher, and even top 1 million.

The ADP National Employment Report on Wednesday showed US private payrolls increased by 517,000 jobs last month, slightly lower than market forecasts.