Daily Market Pulse

Dampening mood underpins the greenback despite U.S. data


The U.S. dollar index, a coefficient used to value the greenback against a basket of six major currencies, rallied 0.56% during yesterday's trading session amid broader risk-off sentiment echoed by disappointing U.S. data. Retail Sales figures fell 1.1% in July, significantly worse than the 0.3% contraction previously anticipated. Equity markets edged lower while U.S. treasury yields recorded mild gains. The delta variant seems to be affecting consumers significantly, and market participants continue to review their estimated growth given the impact of the third wave of the virus. Moreover, the housing market seems to be entering a contraction phase, with a near 30% plunge in mortgage applications, while the NAHB Housing Market Index continues to contract, missing expectations of 80 while posting 75. Additionally, Chairman of the Fed Jerome Powell spoke yesterday, highlighting the Fed is in the process of entirely putting away its tool designed for actual emergencies, although millions of people in service sector jobs are still out of work, which is part of the recovery deemed to need more progress. Later today, we will have a better view of the housing market with mortgages, housing, and building indicators to be released alongside Federal Open Market Committee minutes from its latest meeting. 


The EUR edged lower against the dollar, recording 0.58% losses during yesterday's session amid Covid woes and low European morale, inducing a broader strengthening for the greenback. However, despite the dismal mood, growth data in the bloc met expectations, posting 2% quarterly while the annualized figures came 0.1% lower from expectations, posting figures at 13.6%. Nevertheless, Employment Change posted upbeat figures, showing annualized results at 1.8%, while expectations were set at 1.5% and the previous release showed a contraction of 1.8%.  Later today, European headline inflation figures are due to provide fresh impetus to the market, followed by core figures and construction output in the bloc. 


The British Pound retraced 0.76% against the dollar amid recurring pressures from Covid cases in the U.K. and a risk-off mood, allowing the greenback to capitalize from safe-haven flows. British employment figures failed to ignite momentum over the Sterling, posting 4.7% Unemployment Rate vs 4.8% previously anticipated, while "Earnings including bonus" also edged to the upside posting 8.8% vs 8.7% expected. However, U.K. inflation figures which were released during the early hours of today gave mixed results suggesting that the latest Delta variant has affected internal demand in July. The Consumer Price index released monthly figures at 0% vs 0.3% previously anticipated for July, while annualized estimations missed expectations by 0.2% posting an annualized price change of 2% since July last year. However, the Retail price index outperformed expectations alongside the Produce Price index readings concerning output estimates. The market has reacted mildly to the mixed U.K data as investors await for U.S. data and FOMC minutes to hold a complete picture.  


The Japanese Yen stepped back 0.3% against the dollar amid a spike in covid cases in the country, which compromised fundamentals for the Yen. The risk-off market sentiment failed to underpin the safe-haven perception of the Yen due to the latest increase in coronavirus cases. Japanese authorities reported an overnight rise of over 4k new coronavirus cases reaching 19.9k daily Covid cases. At this stage, the government is evaluating whether the current State Emergency established in Tokyo and seven other cities should be extended until the 12th of September or whether to let it expire on 31st August.


The Loonie extended losses against the greenback, closing yesterday's session 0.48% lower amid a general risk-off sentiment undermining the demand for commodities-linked currencies. The market tone remains cautious, spurred by the Taliban's control over Afghanistan, increasing tension in the region, while covid fears and China's regulatory crackdown keep investors risk-averse. The West Texas Intermediate (WTI) edged 1.23% lower, removing support from the Loonie, as it currently changes hands around USD 67 per barrel.


The Mexican Peso edged 0.56% lower against the dollar as the recent delta variant continues to deteriorate the consumer and investor sentiment forcing investors to look for refuge in the greenback. Mexican authorities reported the country's agri-food trade balance posted a surplus of USD 4.86 billion in the first six months of the year, the largest surplus in 27 years. According to the government, the agricultural products which saw the highest surge in demand were natural honey, which grew by almost 93% followed by flowers, citrus, fruit, and tobacco. However, the most significant agri-food exports remain beer, avocados, tequila & mezcal, and tomatoes.


The onshore yuan depreciated 0.12% against the dollar during yesterday's session amid Covid jitters and a regulatory crackdown from Chinese authorities over technology giants. However, there is a cautious mood as investors await policy signals from central banks before placing any significant bets. Market participants now focus on the upcoming Fed minutes that are being released today, looking for any hints of tapering in September, while the People's Bank of China's upcoming interest rate decision on Friday and monetary policy statement is the market participants' main focus. 


The Brazilian Real continues to edge lower, recording 0.21% losses against the greenback amid a broader risk-off sentiment weighing on riskier assets. However, the Brazilian airline association reported that August was the fourth consecutive month of increased domestic air travel. The August figures are the second-best since the start of the pandemic, behind January 2021. Eduardo Sanovicz, Spokesman of the association, said that vaccine rollout is essential for the recovery of domestic air travel. Brazil has around 55% of Brazilians with at least one jab and 24% are fully vaccinated.


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