Daily Market Pulse

Dollar slows down as equity markets edge higher amid mood recovery


The U.S. dollar index, a benchmark used to value the greenback against a basket of six major currencies, advanced 0.11% amid Delta variant jitters and the U.S. infrastructure bill, which will be put to a vote today in the senate. The risk appetite seems to be regaining traction as U.S. equity markets erased the losses recorded on Monday due to optimism from earnings and hopes of further stimulus. Following the sharp decline on Monday, Dow Jones rallied 1.83% while Nasdaq gained 1.55% throughout the session. President Joe Biden and his bipartisan group of senators have added an additional $600 billion in new spending, and Schumer has set up a Wednesday vote to advance the bill. However, the GOP leaders hinted on Tuesday that Republicans won’t support legislation that remains underwritten, although Schumer insisted that the senate must start the process in order to get it done before the August recess. Investors remain cautious as the spread of the Delta variant continues to dampen recovery expectations and cases continue mounting globally.    


The common currency remained under pressure against the dollar, dropping 0.15% against the dollar during yesterday’s trading session. Covid woes continue to weigh on prospects of recovery in the Eurozone and investors remain cautious ahead of today’s procedural votes on the U.S. bipartisan infrastructure bill and Thursday’s European Central Bank (ECB) meeting. Market participants expect a dovish tone from Christine Lagarde, President of the ECB, at Thursday's press conference, as policymakers may struggle to justify a hawkish stance given the global concerns on the virus and prospective restrictions which could compromise the economic recovery of the bloc. Additionally, the Eurozone bank lending survey shows increased demand for borrowing appetite from businesses, showing early indicators of investment recovery in the real economy, although credit standards remain tight for now.    


The British Pound fell for its fourth consecutive session, recording 0.32% losses amid a global surge in coronavirus infections. Covid risks following “Freedom Day” keep the market sentiment on a risk-averse note, as other European countries implement restrictions again in an attempt to control the virus. However, the Bank of England’s (BoE) next meeting in early August will be key for Sterling, as English policymakers are undergoing a similar debate as to the Fed. Market participants expect a dovish hold from the BoE, despite higher than expected Consumer Price Index figures posted last week which policymakers insist were transitory, stating that inflationary pressure should ease as economies reopen. 


The Japanese Yen retraced against the dollar, closing 0.47% lower amid a recovering market sentiment and with U.S. treasury yields edging higher. The improved risk sentiment was boosted by a recovery in equity prices as market participants expect higher earnings and further stimulus. However, despite the improving optimism, investors remain cautious amid the latest spike in coronavirus cases worldwide, which has been affecting the global outlook for economic recovery. The Japanese government announced last week that Tokyo will enter a state of emergency due to the recent spread of the Delta variant ahead of the Olympic games. The emergence of Covid cases has cast a shadow over the Tokyo Olympics even before Friday’s opening. The first positive case hit the Athletes village in Tokyo last weekend, and more than 70 cases have been reported to be linked to the Games since. 


The Canadian dollar recovered 0.48% against the dollar amid an improving risk sentiment. The shift in appetite extended to crude oil and is helping prices stage a rebound, underpinning the Loonie. The West Texas Intermediate (WTI), which lost nearly 7% on Monday, is showing signs of recovery with prices edging 4.38% higher from the lows recorded on Monday. The pick-up in crude oil prices comes off the back of a strong rebound in the U.S. stock market, underpinning the commodity-driven Loonie as risk aversion eases. Today, we expect a low flow of data, with New Housing Price Index data expected to post a 1.8% increase on a monthly basis.  


The Mexican Peso extended further losses during yesterday’s trading session, recording 0.46% against the greenback amid Covid woes and uplifting news from U.S. capital which hint that further stimulus is on the way to help risk appetite recover gradually. On the other hand, Mexico’s agriculture minister announced that the agri-food trade balance presented a USD 4.23 billion surplus in the first 5 months of the year. Moreover, the aggregated agri-food exports totaled USD 18.72 billion, the highest figures reported in the last 29 years with the beverage sector being the most dynamic, growing 30.8% on a yearly basis.  


The Chinese Yuan remained virtually unchanged during yesterday's trading session amid Delta variant jitters and recovering optimism in the U.S. market. However, days of rain have caused widespread damage in the Henan province, flooding more than a dozen cities. Chinese authorities have reported that 12 people have died after record-breaking rainfall flooded railway tunnels, leaving passengers trapped in rising water, although 500 people have been rescued. In the provincial capital Zhengzhou, experts reported that the equivalent of a year’s average rainfall fell in just three days.  


The Brazilian Real was one of the best-performing currencies against the dollar during yesterday’s trading session, reporting 0.42% gains amid recovering risk sentiment, a Covid slowdown in Brazil, and inflationary fears on the horizon. Brazil registered 15k new cases of coronavirus, the lowest figure since November 2020, and reported 541 deaths, the best statistic since February. The improving numbers provide optimism in a global context where Covid cases are rising quickly and governments are rushing to establish new restrictions in a bid to control the spread of the virus. Moreover, Brazil’s Central Bank (BCB) released its latest bulletin, forecasting inflation around 6.31%, higher than previously anticipated at 6.11%. Headline inflation stood at 8.35% in June, far ahead of the BCB’s target range of 3.75% +/0 1.5. Market participants expect further interest rate hikes from Brazilian policymakers in the upcoming meetings.


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