Daily Market Pulse

Reversal movements


The dollar retracted 0.62% against major peers to its weakest level not seen since early March. The greenback has been losing traction as bond yields pushback from the highs reached at the end of last month, reducing the USD’s yield attractiveness. In general, the current moves are the reverse of what was happening at the beginning of the year, when the dollar got stronger against G10 and emerging market currencies as yields rose and offered higher returns on the greenback. Looking ahead, worries surrounding Johnson & Johnson’s vaccine are set to continue as U.S. drug maker Emergent BioSolutions was told by regulators to stop producing it amid new blood clot cases. Elsewhere, last week’s U.S. Redbook retail sales report is due later today.


The common currency rose 0.45% versus the greenback on Monday on the announcement that the European Union has secured an additional 100 million doses of Covid-19 vaccine from BioNTech and Pfizer, providing support to the currency. However, economic data capped further EUR’s gains after the construction growth fell to -4.7% year-over-year in February. Looking ahead, the upbeat prospect surrounding the vaccine rollout across the bloc is starting to pick up, after a disappointing start, and might continue to provide important support to the EUR. Furthermore, investors and traders are cautiously looking ahead to the European Central Bank monetary policy meeting on Thursday.     


The Cable rallied strongly (+1.10%) on Monday, reaching its strongest level in a month and having its best day of the year. The lack of domestic data favored the pound to take advantage of the dollar's weakness. Moreover, the latest vaccine data is also helping to underpin the Pound.  More than 43 million vaccines have been administered in the U.K, including 10 million second doses. Looking ahead, the U.K reports unemployment figures, and Associated British Foods is among firms reporting earnings. Expectations are for the unemployment rate to come in around 5%, although with the U.K economy reopening the outlook for the labor market is improving.


The U.S. dollar index, also known as DXY, has depreciated by 1.1% over the past week, which has helped the safe-haven JPY to strengthen. Following a new decline in the U.S. Treasury yields, the Japanese Yen hit its strongest level in six weeks yesterday, breaking an important resistance barrier. On the economic front, industrial production dropped by 2.6% year-over-year in February, better than the previous month's 2.1% drop. In contrast, Japanese exports rose by 16.1% in March, its highest monthly gain since November 2017, and an improvement from expectations of 11.6%. Exportations were boosted due to the recent JPY weakness. Looking ahead, the currency might continue to trade close to the yields, as the correlation between the JPY and the 10-year yield remains as strong as ever.


The Canadian dollar slid 0.19% against its U.S. rival on Monday, despite the announced new federal budget containing billions in spending to support the Canadian economy. Canadian Prime Minister Justin Trudeau’s government lined up USD81 billion in new spending to provide emergency support during a third wave of Covid-19 and to help launch an economic recovery ahead of an election expected later this year. Meanwhile, new home construction in the country hit a record high in March, rising 21.6% compared with the previous month. Red-hot demand for real estate also propelled prices, which soared 31.6% year-over-year. Looking ahead, tomorrow's Bank of Canada interest rate decision will be a focus for investors.


Once more, the Mexican Peso advanced (+0.45%) against the greenback, registering its sixth positive trading session. The MXN’s leap was in tandem with a rise in crude oil, which closed 0.40% up, helped by expectations that crude inventories fell in the U.S. Also, the U.S. dollar weakness continues to offer support to the commodity. Looking ahead, the background for the currency remains unchanged, with investors betting that Mexico’s proximity to the U.S will help it benefit from an economic rebound in its neighbor. Today, there is no material data scheduled to be released.


Yesterday, the Chinese yuan inched 0.16% up to reach its one-month high, underpinned by broad U.S. dollar weakness in tandem with a dip in U.S. bond yields. As expected, China kept the loan prime rates 1-year and 5-year steadies, 3.85% and 4.65% respectively, for the 12th straight month at its April fixing. In general, policymakers in China are cautious of any interest rate move that might lead to a stagnation of the post-pandemic economic recovery. Looking ahead, FX markets will closely watch the actual military threat involving the United States and China clash over Taiwan. According to Reuters, while Taiwan is developing its own long-range missiles, to give it an ability to strike back deep into China in the event of war, it has also looked to the United States to help provide it more advanced weaponry.


Starting the week on the right foot, the Brazilian Real edged 0.73% higher against the U.S. dollar, extending gains for the fifth straight trading session. Market players seem more optimistic about public accounts after rumors that the government and policymakers have reached an agreement around the 2021 federal budget. This week, President Bolsonaro should give an official sanction or veto to the proposal. On the economic front, official data reported Brazil's economic activity (IBC-Br) surged 1.7% in February, against January’s figures.  But the reading was before a damaging second wave of infections hit the country. Looking ahead, market players will continue to digest remarks from oil state-owned Petrobras CEO which said he seeks to maintain policies of the previous administrations, including pricing policy.


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