The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed marginally higher before consolidating its gains this morning as the risk flow returns in the market. The market mood appears to have improved early Friday, with Russia confirming a troop withdrawal ahead of U.S. President Joe Biden's meeting with leaders of Canada, France, Germany, Italy, Poland, Romania, the United Kingdom, the European Union, and NATO. Despite the positive shift in attitude, the dollar remains resilient against its peers this morning as traders review geopolitical and inflationary risks. Meanwhile, the Philadelphia Fed Manufacturing Index in the United States fell to 16 in February 2022, down from 23.2 in January, and fell short of market expectations of 20. In other news, U.S. stock futures surged on Friday as U.S. Secretary of State Antony Blinken agreed to meet with Russian Foreign Minister Sergei Lavrov next week, raising optimism for a diplomatic solution to the Ukraine crisis. Moving forward, the Fed Monetary Policy Report will be featured during the North American session to drive dollar prices further.
The Euro closed 0.11% lower yesterday before regaining its momentum on Friday morning as the risk sentiment improves moderately. The common currency weakened against the U.S. dollar in the previous session as investors assess the return of tensions between Russia and the West over Ukraine. Meanwhile, the most recent Fed minutes indicated that the fed funds rate would rise in March, though it was unclear whether the increase would be 25 basis points or 50 basis points. In Europe, European Central Bank (ECB) President Christine Lagarde emphasized that any changes to the bank's policy will be gradual. Meanwhile, the Eurozone current account surplus shrank to EUR 35.6 billion in December 2021 from EUR 42.3 billion the previous year, as the goods surplus fell dramatically. Going forward, the Eurozone's February Consumer Confidence data will be featured on the economic calendar ahead of the weekend, but investors are expected to remain focused on geopolitical concerns.
The Pound Sterling closed 0.22% higher and continued to rise modestly this morning with minor losses. The Pound Sterling has gained for three days in a row as the latest inflation data in the UK strengthened the case for a third rate hike by the Bank of England. Meanwhile, retail sales in the United Kingdom grew 1.9% year on year in January 2022, rebounding from an upwardly revised 4% drop in December and surpassing market expectations of a 1% increase as the impact of the Omicron variant begins to fade. It is the highest growth since April 2021, owing to non-food store sales, which include domestic products, garden centers, lighting, and electrical goods. In other news, the FTSE 100 rose roughly 0.2% on Friday, mirroring a broad uptick in European sentiment after U.S. Secretary of State John Kerry agreed to meet with Russia's foreign minister next week.
The Japanese Yen closed 0.50% higher yesterday before losing its momentum this morning as the market sentiment improves slightly and resumes risk flows. The Japanese currency weakened against the U.S. dollar on Friday, after reaching a 2-week high earlier in the session, as traders reassessed geopolitical risks following U.S. Secretary of State Antony Blinken's agreement to meet with Russian Foreign Minister Sergei Lavrov next week, raising hopes for a diplomatic solution to Ukraine's ongoing standoff. Meanwhile, Japan's consumer prices increased by 0.5% year on year in January 2022, slowing from a 0.8% increase the previous month, which was the fastest pace in two years and marked the fifth consecutive month of increases. In January, core inflation fell to 0.2%, falling short of predictions and remaining significantly below the central bank's objective. Toyoaki Nakamura, a member of the Bank of Japan's board of directors, stated last week that the Bank of Japan (BOJ) will retain its ultra-loose monetary policy in order to help the economic recovery and reach the 2% inflation objective. This is in line with earlier policymaker statements, which highlighted one of the more dovish attitudes among major central banks.
The Loonie closed 0.17% lower before regaining its momentum this morning. The Loonie dipped in the previous session as the yield on Canada's 10-year government bond fell to 1.92% after reaching a three-year high of 1.995% on February 16th, as increased tensions between Russia and Ukraine fueled a rush to safer investments such as government bonds. President Biden issued a new warning that Russia may invade Ukraine in the coming days. NATO had previously declared that it had not observed Russia withdraw soldiers from Ukraine's borders, while Russian-backed rebels and government forces both accused each other of violating cease-fire rules. In terms of data, Canada's annual inflation rate reached a 30-year high of 5.1% in January, putting additional pressure on the Bank of Canada to raise interest rates at its next monetary policy meeting in March. Moving forward, Retail Sales for January will be released today, and are predicted to fall 2.1% as the country was seized by the Omicron variation.
The Mexican Peso closed 0.12% lower yesterday before consolidating its losses on Friday morning. This comes on the heels of resurrected Russia-Ukraine hostilities, with NATO declaring that it has not seen Russian soldiers retaliate. As a result, dealers and investors flocked to safe-haven currencies. On the domestic front, the United States Department of Agriculture has maintained a ban on Avocados from Mexico for the time being, raising concerns that supplies of the popular fruit may run low in some restaurants and grocery shops. The prohibition is in effect during the prime growing season for avocados in Mexico, which runs from January to March. Because the United States imports more than 80% of its avocados from Mexico, the interruption is already driving up prices across the country as restaurants and grocery shops scramble to get extra stock from overseas.
The Chinese Yuan closed 0.10% lower on Thursday against the greenback. The Yuan rose against the U.S. dollar on Friday, reaching levels last seen in April 2018, as the currency was underpinned by solid settlement needs driven by strong Chinese exports. According to SWIFT data, the Chinese Yuan remained the fourth most active currency for global payments in January. The movements happened as the People's Bank of China pumped additional liquidity into the banking system and lowered various policy loan rates, with analysts expecting more easing measures in the coming months, including a 50 basis point reduction in the reserve requirement ratio. Furthermore, statistics released on Wednesday revealed that consumer and producer prices in China dropped faster than predicted, allowing the central bank additional leeway to soften monetary policies further to boost economic growth.
The Brazilian Real closed 0.35% lower in the last session against the greenback. This coincides with the escalation of global tensions, which serves as justification for resuming purchases of safe-haven currencies. The tone of the Federal Reserve (Fed) message calmed concerns about a more aggressive monetary tightening, following the minutes of the U.S. central bank's most recent meeting showed a more measured and data-dependent posture. Market participants attributed Real's recent performance to the perception that Brazil is appealing for new foreign money inflows, with the high level of basic interest rates and the interest rate differential with other economies improving the profitability of the income market. The higher the inflow of fresh foreign capital into the domestic stock market, the greater the supply of dollars, and hence the greater the downward pressure on the U.S. dollar. Analysts warn, however, that the dollar's decline against the real may be transient and may be challenged by factors such as high-interest rates in the U.S. and uncertainties surrounding the country's presidential elections.