Daily Market Pulse

Dollar stable amid Ukraine crisis

USD

After the peace talks between Russia and Ukraine in the second half of the day on Monday, there was a positive shift in risk sentiment. As a result, the U.S. dollar ended the day 0.56% weaker. However, it regained momentum on early Tuesday as investors remained wary in the face of Russia's increased military presence in Ukraine. Following a lengthy discussion on Monday, Russian and Ukrainian teams decided to reconvene for the second round of "peace talks," renewing hopes for a diplomatic solution to the conflict. Meanwhile, the Chicago PMI in the United States fell to 56.3 points in February 2022 from 65.2 points in January, falling short of market expectations of 63. It was the lowest number since August 2020, indicating a slowing of economic growth. Elsewhere, markets are mixed, with U.S. stock futures indices trading flat in the early European session on Tuesday, and the benchmark 10-year U.S. Treasury bond yield is up more than 1% to 1.86%. Moving forward, the ISM's February Manufacturing PMI from the United States will be looked upon for new momentum.

EUR

The Euro closed 0.19% higher on Monday and appears to be trading in a very tight range near yesterday’s high levels. This came after Russia and Ukraine ministers met at the North American Session on Monday, lifting overall market sentiments and adding Euro. However, the single currency is under pressure this morning as Russia increased its forces in Ukraine, heightening investor concern. Investors have reduced their bets on the European Central Bank raising interest rates this year, adding to the pessimistic tone. Money markets now forecast the first ECB rate hike in September, rather than June, and price in a total of 30 basis point increases by year's end, up from around 35 bps previously. In other news, the IHS Markit Eurozone Manufacturing PMI was revised lower to 58.2 in February 2022, down from an earlier estimate of 58.4 and compared to the final 58.7 in January. The latest survey results continue to show that price setters have substantial pricing power, with sharp rates of both input cost and output price inflation persisting. Moving forward, German inflation data and European Central Bank (ECB) president Christine Lagarde's speech will be closely followed today to drive Euro prices further.

GBP

The Pound Sterling closed at 0.40% higher yesterday before losing its steam this morning. Markets remained depressed as investors processed earnings and the Ukraine conflict. A big Russian armored convoy was seen heading towards Kyiv in what appeared to be an attempt by Russia to take the capital. In the meantime, consumer credit in the United Kingdom climbed by GBP 0.6 billion in January 2022, following a downwardly revised GBP 0.8 billion increase in December. This falls short of market forecasts of a GBP 1.05 billion increase. Furthermore, the IHS Markit/CIPS UK Manufacturing PMI rose to a three-month high of 58 in February 2022, up from a four-month low of 57.3 predicted in preliminary estimates and reported in January. Domestic demand, fewer raw material shortages, and improved global supply chain concerns enabled production to climb at its fastest rate in seven months. In other news, the FTSE 100 fell below the flatline on Tuesday, wiping out earlier gains, as the dispute over Russia-Ukraine escalated.

JPY

The Japanese Yen closed 0.18% lower in the previous session against the greenback. The Yen held steady versus the U.S. dollar on Tuesday, following a rise the previous day, as safe-haven flows to the currency reduced following an initial round of cease-fire talks between Russia and Ukraine. Japan also said on Monday that it will freeze Russia's Yen-denominated foreign reserves as part of the G7's measures to tighten sanctions against Russia. Meanwhile, Japan's core inflation rate fell to 0.2% in January, missing expectations and maintaining considerably below the central bank's target. The Bank of Japan has consistently stated that it will maintain ultra-easy monetary policies in order to help the economic recovery and meet the 2% inflation target, emphasizing one of the most dovish attitudes among major central banks.

CAD

The Loonie closed 0.63% higher in the previous session before consolidating its gains this morning. Concerns over increasing tensions in Eastern Europe dominated market mood following the imposition of new restrictions on Russian institutions by Western powers. On the data front, the industrial product price in Canada increased by 3% from the previous month in January 2022, following a downwardly revised 0.5% increase the previous month. This was the fifth straight monthly increase and the largest since May 2021. In other news, oil increased as markets weighed the possibility of releasing emergency stocks against concerns over disruptions to Russian energy shipments. Brent crude increased by 4.3% to $102.22 a barrel. Moving forward, traders will see Gross Domestic Product (GDP) figures for the fourth quarter of 2021, which are expected to be 6.2%. However, the majority of attention would be focused on geopolitical headlines.

MXN

The Mexican Peso surged 0.12% in the last session before losing its momentum this morning. This comes as the U.S. dollar rose amid an increasing dispute over the Ukraine-Russia crisis. The Mexican Peso fell against the U.S. dollar, down from a four-month high reached last week amid a stronger dollar, as investors sought safe-haven assets during a period of heightened volatility for emerging market currencies. Meanwhile, the Mexican unemployment rate fell to 3.7% in January 2022 from 4.7% the previous month, falling short of market estimates of 4.7%. In other news, the Peso's decline was capped by anticipation of more interest rate hikes by Banxico. The central bank stated that inflation risks remain skewed to the upside, with inflation expectations for 2022 and 2023 rising again while medium-term expectations fell somewhat and long-term expectations remained unchanged at levels above the target.

CNY

The Chinese Yuan closed 0.16% higher in the previous session against the greenback. On Tuesday, the Yuan fell marginally against the U.S. dollar, retreating from a near four-year high achieved earlier in the session, as traders absorbed reports that the People's Bank of China (PBOC) injected liquidity into the money market in February. According to the PBOC, the total outstanding medium-term lending facilities (MLF) were 4.85 trillion Yuan. Nonetheless, losses were constrained by the long-term positive view created by the Ukraine situation. Analysts believe that Western sanctions against Moscow could help the Chinese currency in the long run by encouraging Russia to boost its Yuan holdings. Furthermore, the Yuan has been fairly immune to external risk aversion because of huge foreign currency receipt holdings of onshore enterprises as a result of a trade surplus position in recent years.

BRL

The Brazilian Real remained flat against the greenback due to the Carnival holidays. Over the last weekend, the currency broke an upward trajectory of six consecutive weeks of appreciation. However, in February, the currency is expected to end the month with an accumulated high of 3%. Elsewhere, the major Sao Paulo stock index, the Bovespa, rose 1.4% on Friday, reversing a two-day loss and mirroring stronger global equities after miner Vale reported good corporate earnings and declared dividends. Investors throughout the world applauded coordinated Western sanctions against Russia that targeted its banks but did not bar it from the global payment system and did not impede oil supplies.

 

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