The U.S. dollar retracted -0.25% against a basket of major currencies on Wednesday, as longer-term U.S. bond yields have remained some way off the March highs. Although recent price actions continue to suggest that the greenback has resumed its downward trend, major banks have recently reversed their bets towards a strong USD in the near term. On the economic docket, the March U.S. retail sales reports will be in the spotlight, along with last week’s jobless claims number. Both reports have the potential to impact the USD’s price over the trading session as they will show the effect of $1,400 cheque sent to U.S. citizens by the Federal Government.
Yesterday, the common currency continued to climb towards its one-month high after closing 0.24% up, grabbing three straight sessions of gains against the greenback. European investors are more optimistic about the vaccine rollout, which has been ramping up sharply as supplies increase, as well as with lockdowns that have already been imposed in Italy and France to curb a third wave of infections. Furthermore, upbeat news came from the bloc's health chief which maintained its target of vaccinating 70% of adults by summer, and vaccine passports are moving closer, a godsend for the damaged travel sector. Today, investors will continue to digest the recent remarks from ECB President Christine Lagarde, which signaled a pushback on suggestions surrounding a reduction in the bond purchase program. March’s German Consumer Price Index will also drive some attention.
The Sterling, which is a higher-beta currency, rose 0.14% against a subdued greenback on Wednesday. However, given that most of the good news is already priced in, the Pound could struggle to show further gains in the upcoming weeks. Meanwhile, pouring cold water on the fresh more permissive restrictions across the country, there are renewed concerns surrounding a new cluster of South African virus variants in the U.K. as surge testing is ramped up to contain the breakout. If the country gets a rapid spread of this variant across Britain, the government may have to put the reductions of lockdown into reverse. On the economic front, BoE's Credit Conditions Survey is the economic docket highlight of the day.
As the U.S. yields remain fairly subdued, the Japanese yen takes the opportunity to climb against the U.S. dollar. On Wednesday, the JPY rose 0.11% as the U.S. 10-year Treasury yield dropped to 1.618%. The year-to-date correlation between both assets is around 97%. Elsewhere, remarks from the Bank of Japan Governor Haruhiko Kuroda drove some attention, saying that risks to the economy and prices remain leaned to the downside. According to Mr. Kuroda, the Japanese economy is in a severe situation but picking up as a trend. In general, the comments did little to influence the JPY. Today, the Reuters Tankan index, which gauges the manufactures’ sentiment, is due.
Softness in the dollar helped to provide a tailwind for the Loonie, which rose 0.12% on Wednesday. An upbeat tone in the oil markets also provided substantial support to the CAD, after the crude oil West Texas Intermediate rallied almost 5% to $63.15 a barrel. The oil’s leap is due to the optimism surrounding the return of demand in the U.S., which was confirmed with the reduction of oil inventory in the country, according to the International Energy Agency. Looking ahead, market participants are trading the CAD rather cautiously as they are expecting that next Wednesday the Bank of Canada might announce it is cutting bond purchases by C$1bn per week to C$3bn. If this is confirmed, the CAD could strengthen against the greenback.
On Wednesday, while the Mexican peso touched a two-month high before closing 0.14% up against the U.S. dollar, Mexican shares jumped over 1%. The highlight here is Televisa's shares, which soared up to 32%, set for their best day ever after Mexican President Andres Manuel Lopez Obrador hailed Televisa's plans and said the operation would yield several billion pesos in taxes. The plan consists of combining content with U.S. broadcaster Univision for the creation of a new Spanish-language media company with plans to launch a global streaming platform. Looking ahead, the weekly international reserves figures will be published later today.
Once more, the Chinese yuan printed gains (+0.24%) against the U.S. dollar, grabbing three consecutive days of gains as the currency continued to trade along with the broader emerging market currencies. Separately, traders are expecting a higher cash demand in the coming days due to quarterly tax payments, which could give some support to the CNY. Meanwhile, all eyes will be on China’s first-quarter GDP which will be released today. A strong economic rebound during the period is expected due to an overheated industrial sector, as well as an improvement in the services sector. The fresh figure will be a further munition for policymakers in their next policy meeting.
It was a positive day for the Brazilian Real, which was able to appreciate over 1% against the greenback, on Wednesday. Economic data from Brazil’s Central Bank showed that Foreign Exchange Flows from January to April 9th was positive at $8.7bn. In the same period last year, the result was a negative $13.8bn. The positive results reflect an improvement in foreign direct investments and surging exports, mainly commodities. Under the radar, investors and traders are closely monitoring the pricing of mining state-owned Vale’s public offering for the secondary distribution of participatory debentures, whose total value was set at BRL 11.47bn (US$2bn). The expectation is that a large part of this value has been with international investors, a sign of a potential inflow of capital.