LONDON: Backed by a $2 trillion US government spending plan, the dollar consolidated its first-quarter gains on Thursday, holding near multi-month highs while upbeat factory data from the euro zone offset news of a new lockdown in France.
In midday trading in Europe, the dollar index was flat at 93.208 and hanging on close to a five-month high of 93.439 reached on Wednesday.
The US currency gained 3.57% against the basket of six major currencies during the first quarter of 2021, its best quarterly performance since 2018 with investors betting on a swift and robust economic recovery.
The gains came as the euro, the biggest component in the index, suffers from 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 currency bloc also lags the United States in vaccination programmes.
Sentiment towards Europe received a boost however in morning trading when data showed euro zone monthly factory activity growth galloped at its fastest pace in the near 24-year history of a leading business survey.
“The eurozone manufacturing sector proved once again to remain resilient through the re-imposed wave of lockdowns”, commented Maddalena Martini, euro zone economist at Oxford Economics.
European Central Bank chief economist Philip Lane said the central bank would need to maintain copious support for the economy as a surge in euro zone inflation is driven by transient factors and the underlying trends remain weak.
The euro changed hands up 0.06% at $1.1735, after hitting a near five-month low of $1.1704.
Against the British pound, the common currency was up 0.08% after hitting a 13-month low of 0.85025 pound.
The US currency held firm against the yen after ending March with its biggest monthly gains since November 2016.
The dollar traded at 110.80 yen, having risen to as much as 110.97, its highest in a year.
As the US dollar maintained its strength, the Australian dollar dropped 0.45% to $0.7560, a low last seen in late December.
China’s onshore spot yuan finished the domestic session at 6.5739 per dollar, its weakest close since November 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 towards the Easter holidays in many parts of the world, the dollar could gain if key US economic indicators surprise on the upside.
A survey by the Institute for Supply Management (ISM) on Thursday is expected to show a further improvement in manufacturing activity.
Economists expect Friday’s 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 one million.
The ADP National Employment Report showed on Wednesday US private payrolls increased by 517,000 jobs last month, slightly lower than market forecasts.
In the crypto asset market, bitcoin lost some ground after displaying some firmness over the past several days. It traded down 0.76% at $58,375.
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