Daily Market Pulse

Dollar edges higher amid market uncertainty and incoming data


The U.S. dollar index, a benchmark used to assess the performance of the greenback against a basket of six major currencies, recorded mild gains during yesterday's trading session, amid a renewed attitude in the Chinese’s regulatory crackdown, Covid fears, and uncertainty ahead of U.S. Retail Sales and Jerome Powell’s speech later today. Market morale stays low due to an overall note of concern in the economy, prompting several participants to look for refuge in the dollar. Moreover, the U.S. equity market continues to edge higher, with S&P recording new all-time highs while U.S. treasury yields edged lower. Covid cases continue to rise in the U.S. weighing on the prospects of economic recovery, while global investors fly to the greenback, reducing risk amid safe-haven perceptions. Coming up, U.S. Retail Sales are expected to contract marginally, with minor rises in core measurements, as investors assess the impact of rising inflation and Covid on consumer sentiment, which failed to impress last Friday, triggering a sell-off on the greenback. Moreover, Jerome Powell, Chairman of the Fed, is due to speak later today, and he could refer to the timing of policymakers tapering its bond purchase programme. Market expectations have been set such that the Fed will announce an adjustment as soon as September, which has supported the greenback ahead of the speech from the chairman of the Fed. 


The EUR had a mild retracement (-0.07%) against the greenback, amid broader market uncertainties and poor morale in the bloc. Previous consumer and investor sentiment figures suggest that Covid concerns continue to dampen growth expectations. The Eurozone Trade Surplus narrowed in June, while Industrial Production fell 0.3% in June compared to market expectations of a  drop by 0.2%. Later today, important data from the Eurozone is expected, with Employment Change and Gross Domestic Product estimates for Q2 being released, with expectations at 1.5% annualized and 13.7% annualized respectively. 


The British Pound remains on the backfoot amid the risk-off mood and Brexit headlines weighing on cable, while investors remain expectant from monthly employment data from the U.K. for renewed impetus. The recent outbreak of the Delta variant and fears of further and/or deadlier strains continue to weigh on market sentiment.  The U.K. media quoted the Scientific Advisory Group for Emergency (SAGE) saying “A future new coronavirus variant capable of beating the protection given by the current vaccine is almost certain to emerge”. The comments come following a recent spike in daily infections from 25k to 28k. Moreover, Brexit jitters avoid supporting the British Pound, with Former EU Brexit negotiator Michael Barnier for a five-year moratorium on all immigrants into the EU - a move that would effectively ban British settlement and all others. Coming up, the UK's unemployment rate is expected to remain unchanged at 4.8%, suggesting that the BoE will raise its benchmark rate in 2023. 


The Japanese Yen extended gains (0.25%) against the dollar, underpinned by its safe-haven appeal during yesterday's trading session. Today, market focus will shift to the greenback amid a lack of data releases featured in the Japanese economic calendar, while market sentiment continues to be the main driver. The risk-off wave keeps pushing U.S. Treasury yields lower, retracing 3.5% and dropping to 1.237% while U.S. equities continue to edge higher. We expect upcoming comments from Chairman of the Fed, Jerome Powell, to have an impact over Treasury Yields, which is likely to initiate movements over the pair. Additionally, the Federal Open Market Committee minutes are due on Wednesday.    


The Loonie fell 0.51% against the greenback during yesterday's trading session, extending losses through today’s session amid a broader risk-off sentiment, weaker commodity prices, and mixed data which keeps the Canadian dollar on the backfoot. Persistent Coronavirus jitters and poor Chinese data continue to weigh on the prospect of the demand for commodities. The West Texas Intermediate fell 2.92%, hitting the low of the day at USD 66 per barrel and closing 1 dollar above. Moreover, the surprise election called by Prime Minister Justin Trudeau induced several factors of uncertainty, while Manufacturing sales failed to impress and to support the Loonie. 


The Mexican Peso edged 0.20% lower against the greenback amid broader risk-off sentiment dampening appetite for riskier assets. Moreover, Mexico’s President, Andres Manual Lopez Obrador (AMLO) blates critics against the conservative opposition who had raised concerns that reopening schools could exacerbate the country’s third wave of Covid. Additionally,  Mexican authorities announced that Foreign Direct Investments in the country have increased over 2.6% in comparison to the first 6 months of 2020. The report showed that the majority of foreign direct investment went into manufacturing (40.6%), followed by Mining (13.5%), and financial services (11.6%). 


The Chinese Yuan remains relatively unchanged against the dollar amid further regulatory slash and dovish expectations for the upcoming People's Bank of China interest rate decision later on this week. Chinese authorities upped the ante on their anti-monopoly efforts against tech giants, banning profits in-school tutoring and launching a critique of online gaming. China’s interventions have plunged Asian stock markets and fueled concerns that global investors will trim back Yuan assets and step back from adopting the Yuan in international trade. However, Yuan payments increased 2.46% during the month of June, suggesting that despite the regulatory disruptions, the Yuan has grown in popularity thanks to easing exchange controls and its demand for its Treasuries continues to be intact.


The BRL remains on the backfoot amid broader dollar strength due to risk-off mood and political turmoil and pressures in the country. Following the Supreme Court’s statements initiating an investigation against the President, Jair Bolsonaro announced he would take legal action and present an impeachment request against two supreme court judges, Luís Roberto Barroso and Alexandre de Moraes. Additionally, the Brazilian Central Bank released the latest figures in economic activity showing a positive variation of 1.14% in June, after contracting 0.43% in May. In annualized terms, the same index suggests that the economy grew 9.07% in June and 13.17% in the second quarter of the year. 


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