Daily Market Pulse

Dollar pauses as investors take a breather and treasury yields edge higher


The U.S. dollar index, a coefficient that values the greenback against a basket of six major currencies, remained on the back foot during yesterday's trading session, extending losses to multi-week lows, although it closed only 0.08% lower it is testing key levels. However, the dollar failed to extend further losses amid end-of-month flows and profit-taking from market participants. However, the mood remained cheerful in global markets and we expect the dollar to remain weak ahead of the expected Non-farm payrolls which may renew impetus in several markets. Nevertheless, U.S. treasury yields edged higher, with 10-year notes settling at 1.309% which might spark some interest and slow down the dollar appreciation, although investors await U.S. job reports and its possible effects on the future of the monthly purchase of USD 120 billion worth of bonds. 


The EUR advanced 0.41% during yesterday's trading session edging closer to the August highs recorded at the beginning of the month. The command currency continues to extend gains against the greenback as the market mood removed support from the safe-haven dollars amid restoring support and Fed officials committing to deploy further stimulus in the short term. Additionally, inflation figures in Europe started showing signs of encouraging activity. The German Consumer Price Index posted a solid 3.9% YoY, bang on expectations, while French indicators exceeded market consensus posting 2.4% annualized vs 2.1% previously anticipated. The favorable pick-up in inflation was transmitted to the bloc's performance, releasing Eurozone headline inflation at 3% YoY vs 2.7% expected. Core reading for the block also outperformed expectations by 0.1%, with readings at 1.6%. Coming up, market manufacturing PMIs and Unemployment figures will provide renewed impetus for the pair to extend its move amid the improving sentiment. 


The Pound Sterling, closed yesterday's trading session virtually unchanged against the dollar, despite advancing in the early hours of the day, hitting a two-week high mark. The greenback benefited from higher U.S. yields edging above 1.309% during yesterday's trading session erasing the early gains amid investor confidence. However, British pessimism around coronavirus conditions and Brexit headlines exert additional downside pressure on the price. Covid stats continue to deteriorate, returning back to over 30k daily infections while the death toll spiked to 50 daily deaths.  Moreover, Britain faces a final decision on the booster shots on fears that the major vaccine's effectiveness fades in five to six months. 


The Japanese Yen sustained pressure from the greenback, extending losses during the early hours of today, edging 0.33% higher. The Yen remained subdued to U.S. treasury yields edging higher amid improving economic conditions and expectations of tapering. The Yen's safe-haven appeal has failed to underpin the JPY due to compromised fundamentals in the Japanese economy and its slow vaccination rollout programme. However, the latest data release suggests that fundamentals in Japan continue to diminish the morale indicators in the country. The Consumer confidence reading posted a poor 36.7 vs 37.4 previously anticipated suggesting that looming conditions still sustain in the country.  


The Loonie continues to add pressure over the greenback as market sentiment restores and oil prices recover from soft demand expectations. However, the recovery in crude oil prices seems to have taken a breather as the markets await renewed impetus from today's OPEC meeting. On the data front, Gross Domestic Product figures released yesterday failed to impress, posting a contraction of the economy of 1.1% in the second quarter of the year, way below the expected growth of 2.5%. The soft data keeps the pair at the crossroads.


The Mexican Peso advanced 0.32% against the dollar as the global risk sentiment recovered amid lingering remarks from Fed policymakers. Moreover, the mining sector in Mexico announced an aggregated investment of USD 3.18 billion in 2020, 35% less than figures recorded in 2019. In combination with the impact of the pandemic, the reduction in investment has resulted in modest job losses in the mining sector falling from 379k to 367k. However, the recovery of the prices of metal last year meant that the total value of mining production in Mexico was actually higher in 2020 than in 2019, rising from USD 11.85 billion to USD 13.95 billion. 


The Chinese Yuan remained on the front foot amid solid progress on containing the virus, allowing restrictions to ease. However, the economy is hardly responding, with consumption falling to recover and production proxy showing only marginal improvement. The vaccination rate continued to pick up, reaching 2 billion doses by August 27, equivalent to 143% of the population. The successful handling of the delta variant allowed Chinese authorities to declare that no parts of the country were deemed high-risk regions today.


The Brazilian Real closed 0.51% higher against the dollar amid risk-on appetite in the global market, although plumped 1.27% at some point of the day. Given the recent political turmoil between the executive branch and the supreme court, Agribusiness entities issued a pro-democratic manifesto calling for the end of institutional tensions to allow “effective and sustainable” social and economic development of Brazil. Additionally, the government announced its new program to sell off state-owned property in order to try to fill the fiscal deficit that keeps the country against the ropes. 


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