Daily Market Pulse

The Dollar’s back to conquer

USD

The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, declined 0.38% during Friday’s closing session. In last week’s data release, inflation readings surged to 6.8% annually as expected, the highest in the last 39 years, shifting the market participants’ attention to the Federal Open Market Committee (FOMC) set to take place on Wednesday this week. The decline in the U.S. dollar is attributed to the slide in the U.S. Treasury yields last week, although the Fed’s hawkish tone keeps extending support to the greenback. Economists anticipate that the FOMC would shift to an aggressive policy with the announcement of a faster pace of tapering of its bond purchases to contain the stubbornly high inflation. Additionally, market participants are expecting Fed officials to deliver two rate hikes in 2022, which would push up the U.S. money markets and take the dollar up with it. Meanwhile, despite the headlines of the Omicron virus, markets are cautiously optimistic, with the U.S. stock futures up over 0.3% in the day. Moving ahead, traders are preferring to move sideways and wait for major economic releases before placing bullish bets on the greenback. 

  • Tuesday 12/14/2021 - Producer Price Index 
  • Wednesday 12/15/2021 - Interest rate decision ¦ Monetary policy statement ¦ FOMC economic projections
  • Thursday 12/16/2021 - Housing stats(Nov) ¦ Markit Service PMI (Dec) 

EUR

The Euro surged 0.18% against the dollar towards the end of last week’s session. The Euro started the first day of the new week by declining 0.20% as it headed into the European trading session. The monetary policy divergence between the European Central Bank (ECB) and the U.S. Federal Reserve restricts the Euro to advance higher. Economists believe that the ECB policymakers will meet for an interest rate decision, as a meeting is scheduled for this week. The ECB is anticipated to hold its dovish stance,  and they are expected to start its reduction in the Asset program in April 2022. Additionally, it is also expected that the ECB inflation forecast will show inflation falling below the target in 2023, signaling no sign of rate hikes in 2022. In contrast, the Fed policymakers are nudged by record-high readings of inflation last week and are planning to move aggressively on asset purchase reduction. The recovery of U.S. yields in today’s session puts further pressure on the Euro. Looking forward, market participants will get cues from Germany’s wholesale price index and Omicron-related headlines to drive the prices of the Euro. 

  • Monday 12/13/2021 - German Wholesale Price Index
  • Tuesday 12/14/2021 - Industrial Production
  • Thursday 12/16/2021 - European Council meeting ¦ ECB Interest rate decision ¦ ECB monetary policy statement 
  • Friday 12/17/2021 - European leaders summit ¦ Consumer Price Index (Nov)

GBP

The Sterling rose by 0.39% against the greenback during Friday’s closing. Sterling, after last week’s recovery from a one-year low, started the week with a bearish tone, witnessing fresh selling off during the early European trading session on Monday. In the new week, the Sterling was undermined by news that UK Prime Minister Boris Johnson could impose additional restrictions over the Omicron virus spread in the country. Additionally, the UK’s health secretary, Sajid Javid, mentioned that 40% of the cases in London involved the new strain and that it is spreading phenomenally. Meanwhile, the recent developments in the coronavirus variant have caused investors to revise their expectations for a Bank of England’s interest rate rise decision, which is scheduled on Thursday, while the market participants are confident over Fed’s aggressive move, further undermining the Sterling. Traders today will have a look at the Financial stability report, along with Omicron headlines to move ahead for the Sterling prices. 

  • Monday 12/13/2021 - Financial Stability Report 
  • Tuesday 12/14/2021 - Average Earnings Excluding/Including Bonus ¦ Claimant Count Change ¦ ILO Unemployment
  • Wednesday 12/15/2021 - Consumer Price Index (Nov) ¦ Core Consumer Price Index ¦ Producer Price Index ¦ Core Producer Price Index ¦ Retail Price Index 
  • Thursday 12/16/2021 - Bank of England minutes ¦ Interest rate decision ¦ Monetary policy summary 
  • Friday 12/17/2021 - GfK Consumer Confidence ¦ Retail Sales ¦ Markit Services PMI ¦ BoE Quarterly Bulletin ¦ Markit Services PMI (Dec) 

JPY

The Japanese Yen surged 0.04% against the U.S. dollar on Friday’s closing session. The Yen started a new week on a weak foot and showed a fresh sell-off during the European trading session. The U.S. Treasury yields recovering today supported the greenback strongly against the Yen. Additionally, the U.S. dollar is drawing support from market participants over the Fed’s hawkish tone and widely expected interest rate hikes. Meanwhile, the easing concerns of the Omicron variant support the market’s risk-on mood, underpinning the Yen and keeping limitations over further downside. Additionally, the Yen is likely to draw further support after comments from Japanese Prime Minister Fumio Kishida stating that the government has secured a budget to help the country during the economic crisis as Japan’s one-year inflation expectations jump to the highest levels since September 2015. Traders are focused on the Bank of Japan’s interest rate decision this week, which follows the Fed’s rate hike decision. Market participants today will be looking for broad market sentiments and U.S. dollar price dynamics to find short-term trading opportunities around the Yen. 

  • Tuesday 12/14/2021 - Industrial production (Oct) 
  • Friday 12/17/2021 - BoJ Interest rate decision ¦ BoJ Monetary policy statement

CAD

The Loonie declined by 0.07% against the greenback on Friday’s closing followed by extending its downtrend while heading into the new week. The Loonie fell to four-day lows on Monday during the European trading session. The downtrend was driven by an increase in demand for the U.S. dollar, although it was unaffected by an increase in crude oil prices, which tends to support the commodity-linked Loonie. The U.S. dollar was back in demand driven by recovering Treasury yields and the Fed’s hawkish tone, which is expected to intensify after the strong inflation readings released last week. Looking ahead, traders are waiting for the week's key event - The Fed’s interest rate decision - before placing further bets, while market participants today will take hints from broader market sentiments and crude oil prices to give fresh momentum to the Loonie.  

  • Monday 12/13/2021 - BoC Monetary Policy Framework ¦ BoC Governor Macklem Speech
  • Wednesday  12/15/2021 - BoC Consumer Price Index(Nov) ¦ BoC Governor Macklem Speech
  • Thursday 12/16/2021 - Wholesales Sales(Oct) 
  • Friday 12/17/2021 - Canadian portfolio investment in foreign securities

MXN

The Mexican Peso surged 0.37% against the dollar during Friday’s closing. The Central bank of Mexico (Banxico) is expected to increase the benchmark interest rates by 25 basis points and keep the door open for more. Interest rates remain below the neutral level and are staying in line with monetary policy. Additionally, high inflation in Mexico, resilient price pressures, and high inflation expectations support increasing interest rates. In contrast, falling economic activity and looming supply chain dents argue against the tightening of monetary policy and keep the stimulus support active. Moving ahead, market participants are waiting for an interest rate decision by Banxico this week, while traders will see broader market sentiments to find short-term trading opportunities around the Peso.

  • Thursday 12/16/2021 - Central Bank Interest rate 

CNY

The Chinese Yuan surged 0.12% against the U.S. dollar at the closing of Friday’s session. On Monday, the offshore Yuan edged higher against the U.S. dollar as robust business demand for the local currency remained supportive. A high current account surplus and consistent capital inflows are also supporting the Chinese Yuan. Meanwhile, the Chinese government kept the Yuan under control, with the People's Bank of China adopting a lower-than-expected midpoint rate. Weaker central bank fixing also followed a rule published last week requiring banks to retain more foreign exchange in reserve, which was interpreted as an attempt to slow the rate of Yuan appreciation. Traders were cautious elsewhere, as the Federal Reserve is expected to imply a faster withdrawal of asset purchases and an early start to rate rises this week.

  • Wednesday 12/15/2021 - Industrial Production Index (Nov) 

BRL

Last week, the Brazilian Real fell 0.52% against the U.S. dollar. With no new catalysts, market participants continued to assess the effects of the 9.25% Selic on inflation and economic growth. In addition, the enactment of excerpts from the PEC of Precatórios, which changes the rules of the country's spending ceiling, lent support to the Brazilian Real. The spending ceiling is now adjusted for inflation from January to December, which should make BRL 65 billion available in the 2022 Budget. Meanwhile, the proximity of the Christmas festivities soothed the mood of the politicians, with the climate among public institutions remaining positive. No major institutional conflicts were registered, and high-priority government projects have been positively appreciated by Congress. Additionally, unlike the U.S´s agenda, the domestic agenda does not have any relevant data release for the week, leaving the Fed’s meeting in the spotlight.

  • Monday 12/13/2021 - BCB Focus Market Readout 
  • Tuesday 12/14/2021 - BCB Copom Meeting Minutes ¦ Brazilian Service Sector Growth (Oct)
  • Wednesday 12/15/2021 - IBC-Br Economic Activity
  • Thursday 12/16/2021 - BCB Inflation Report ¦ BCB National Monetary Council Meeting 
 

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