Daily Market Pulse

FOMC minutes fade while the USD retraces against its pairs


The U.S. Dollar index, which tracks the performance of the greenback against a basket of global currencies, erased the gains that originated from the hawkish Federal Open Market Committee (FOMC) minutes. The Index retraced back (-0.44%) to its lowest level since February and it is currently testing the key support level for the second time this week. The U.S. equity markets had a rebound led by tech stocks after U.S. jobless claims outperformed expectations, fueling optimism and confidence in the economic recovery. The positive job report is the first release of macroeconomic data after the FOMC minutes hinted on Wednesday that if the rapid economic progress continues it will prompt the Fed to ease back on further stimulus. Later today Purchasing Managers Index (PMI) figures will provide further insight into the development of the US economy.


The EUR recovered from Wednesday’s selloff as investors’ appetite for riskier assets improved during the trading session. The bearish sentiment following the FOMC minutes seems to have faded away and the EUR has resumed its bullish run. The rally came off the back of the EU proposal to introduce the Digital Covid-19 certificates which will ease travel within the member states. These certificates will offer proof that their holders have been vaccinated, have recovered, and are considered immune, or have had a recent negative test. This initiative improves the prospect of the European economy recovering ahead of the summer holiday season. Today we will stay tuned to the Eurogroup meeting which might spark some volatility throughout the day alongside PMI and Consumer Confidence data releases. 


The British Pound rallied 0.6% against the greenback as investor confidence and appetite for risky assets recovered, while U.S. Treasury yields fell back 2.45%. However, U.K. Brexit Minister David Frost said that the U.K. failed to secure the Brexit agreement it wanted for Northern Ireland. The Irish Sea border keeps mounting challenges to Irish fishermen who continue building tensions with their French counterparts over the fisheries rights. Interestingly enough, the negative news surrounding Brexit did not put much pressure on the pound as it seems that this was already priced into the market and all eyes are on inflation and the reactivation of the economy.


In an effort to prevent the spread of the new Indian covid variant into Japan, the government added seven more countries to its entry-ban list, aggregating to a total of 159 countries. Moreover, JPY has steadily recovered the ground lost after FOMC minutes were released during the course of the week. In the early hours of the morning, the Japanese Consumer Price Index (CPI) release met expectations thus solidifying the JPY recovery and opening the prospect for the Yen appreciation to continue throughout the day.


The Canadian Dollar had a positive session (+0.59%) against its U.S. counterpart. However, oil and commodities prices seem to have slowed down. The barrel of West Texas Intermediate (WTI) fell 2.26% during yesterday's session which helped provide some support on USDCAD’s bearish run. The Loonie is looking to close the week with further gains ahead of retail sales later today. On the other hand, the Bank of Canada’s (BoC) Financial System Review Summary flagged serious concerns over household indebtedness and the rapid rise in house prices which might pose considerable risks to the instability of the Canadian economy.


Following the latest interest rate decision to leave it unchanged, Irene Espinosa, Sub-governor of the central bank, said that further expansionary monetary policy is off the table as the pick of inflation has already doubled the target inflation rate of 3%. Analysts suggest that the Bank of Mexico is set to start raising rates in the second half of the year and the shift in policy should increase interest rate differentials against the USD while overweighting further appreciation of the Mexican peso.  


The Chinese Yuan keeps adding pressure to the greenback and it currently tests the highest levels we have seen year-to-date. The comments from the Peoples Bank of China in relation to floating exchange rates have been welcomed by the market, and analysts suggest that the appreciation of the Yuan should keep its steady course until it reaches the levels we saw back in 2018. On the other hand, China continues to roll out its pilot program for the launch of e-CNY, the first digital currency to be backed by any central bank. This currency aims to offer cross-border transactions and payments with lower fees, higher efficiency and protection of privacy. According to the Hong Kong Monetary Authority, the testing process was a success, with 200 individuals participating in the program, following a rollout to four different cities amounting up to 750,000 users testing the blockchain. 


The Brazilian Real had a positive session (+0.48%) against the USD after the effects of the FOMC minutes diluted throughout the session. However, the political drama continues to unfold in the country. Environment Minister, Ricardo Salles, is under investigation for being involved and facilitating the trafficking of rainforest products, specifically timber. The Brazilian Supreme court issued a warrant for the police to raid the ministry offices resulting in the suspension of 10 officials from their posts. The trafficking scheme involves top government officials, including President Jair Bolsonaro, who has been strongly criticized for the Amazon deforestation which has lost seven times the greater London area during the course of the last year. 


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