Daily Market Pulse

NFP lingers while Biden infrastructure bill builds up momentum


The U.S dollar index, which tracks the performance of the greenback against a basket of six major currencies, sustained gains, advancing 0.15% during yesterday trading session amid expectations of an earlier Fed tapering after better than expected NFPs blew it out of the park, which keeps U.S. Treasury Yields edging higher. Raphael Bostic, Atlanta Fed president, said yesterday during an online event that the Fed could begin tapering between October and December, possibly even earlier if there is another month or two of strong job gains. However, the market mood remains cautious as Delta variant jitters continue to generate pressure, and prospects of stimulus withdrawal keep equity markets on the backfoot. Nevertheless, President Joe Biden’s  USD one trillion infrastructure bill seems to have solved the deadlock in bipartisan negotiations, as U.S. Senate majority leader Chuck Schumer said “we have come to an agreement for the final passage of the infrastructure bill”. The Senate is due to vote on the bill today, which in the case of it coming into effect, could lead to expectations of an enormous stimulus to be deployed over the market triggering volatility throughout today's trading session. 


The EUR remains subdued, falling 0.13% against the dollar amid higher U.S. Treasury Yields and a broader appreciation of the greenback. Additionally, Sentix Investor Confidence for August failed to impress despite falling Covid cases in Europe and vaccination rollout, releasing 22.2 vs 29 expected and the 29.8 figure released in July. Moreover, the German current account and Trade balance released mixed figures, with exports growing at 1.3% and imports slowing down from 3.4% to 0.6% in June amid Covid jitters. Later today, the ZEW Survey, which provides insights on the economic sentiment and morale in the Eurozone, is expected to post 72, higher than July’’s release at 61.2. 


The Pound Sterling retraced 0.12% against the greenback amid renewed Brexit jitters, bringing with it a migrant crisis to the table. Nigel Farage, Former Brexit Party leader, said yesterday that France and the European Union have failed to “lift a finger” to prevent migrants from crossing the dangerous channel, muddying the waters with Brussels and Paris. Following the Bank of England’s Interest Rate Decision last week, the CFTC data reported sterling rising 3% in net longs of open interest, suggesting that the market is positioned in a bullish fashion in favour of sterling, which is backed by the BoE’s hawkish tilt. However, market participants will keep an eye on Thursday's data release, where Gross Domestic Product is expected to rise 0.8% on a monthly basis, sustaining figures from May.   


The Japanese Yen extended losses during yesterday's trading session, closing 0.16% lower against a broadly stronger dollar amid tapering expectations and higher Treasury Yields. The market continues to digest the better than expected nonfarm payrolls from Friday, and eyes are on the upcoming infrastructure bill vote later today.   Risk sentiment remains cautious as worries that the fast-spreading Delta variant of the Coronavirus, which could derail the global economic recovery, continue to deteriorate investor sentiment.  However, any shifts in risk perception should support the Yen, limiting exposure on the downside.


The Loonie remains on the backfoot, recording 2-week lows against the greenback amid bolstering demand due to tapering expectations and higher Treasury Yields. The aftermath of the job reports where the U.S. posted outstanding results vs Canada’s modest performance continues to weigh on the Loonie while growing expectations of an ambitious USD 1 trillion infrastructure bill keep traders on the edge of their seats. Additionally, the West Texas Intermediate (WTI) continued to extend losses during yesterday's trading session as market participants worry that a Chinese economic stall could diminish expectations of oil recovery. However, WTI attempted a rebound, despite China reporting more COVID-19 cases and authorities stepping up mass testing to contain local transmission of the highly contagious Delta variant, and this, in turn, has translated into support for the Loonie.  


The Mexican Peso dropped 0.22% against the dollar following comments from Fed officials and lingering NFP results which continue to bolster dollar demand. Arturo Zaldivar, President of Mexico’s supreme court, announced that he would conclude his term, rejecting a proposal to extend his current mandate until 2024. Additionally, Mexican authorities released new figures showing a pick up in investment, as the gross fixed capital formation in construction and machinery grew 47.2% since last year and 0.7% compared to April 2021.  


The Chinese Yuan edged 0.07% lower yesterday, amid a broader greenback demand due to an increase in Treasury Yields driven by tapering expectations. However, the Yuan rose during the early hours of today, following solid trade surpluses and expectations of support from policymakers. Additionally, Economists from Goldman Sachs and JP Morgan have cut growth forecasts for China for the second half of the year, given the latest spread of the virus which keeps market participants cautious. The People's Bank of China is committed to supporting the real economy, and refraining from offering excess liquidity could be a signal that it is preparing to further cut the reserve requirement ratio or even lower interest rates as the Fed is expected to taper. 


The Brazilian Real remained virtually unchanged against the dollar amid broader strength from the dollar and government officials' comments pledging austerity. The Real reversed previous losses during the trading session after Joao Roma, Citizenship Minister, said that “there is no possibility” of the flagship social program proposed by the government given the fiscal pressure it entails. Additionally, Arthur Lira, President of Brazil’s Chamber of deputies, confirmed that an electoral reform proposal would be voted upon by the chamber’s plenary despite having been rejected at the committee level. 


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