Daily Market Pulse

Dollar struggles for momentum

USD

The U.S. dollar failed to maintain its strength in the second part of the day on Tuesday, resulting in the U.S. Dollar Index closing modestly lower. Although the 10-year U.S. Treasury note yield rose to its highest level since May 2019, the risk-averse market environment made it tough for the greenback to find demand on Wednesday morning. Furthermore, the lift from aggressive Fed words dissipated, owing in part to a surge in the equities, which eroded some of the greenback's safe-haven attractiveness. In other news, the S&P 500 gained 1.1%. The index has already regained half of its losses since the beginning of the year. The price of West Texas Intermediate crude rose 0.9% to $110.21 per barrel. Oil surged on the potential of more penalties against Russia for its invasion of Ukraine, as well as a drop in U.S. crude inventories. Going forward, investors are looking forward to Fed Chairman Jerome Powell's speech, as well as February New Home Sales data to provide fresh impetus to the U.S. dollar prices.

EUR

The Euro closed 0.12% higher on Tuesday before losing its momentum this morning. The common currency surged while the U.S. dollar fell on market optimism about risk. In terms of data, the Eurozone posted a current account deficit of EUR 1.7 billion in January 2022, the first deficit since May 2020, as rising energy imports weighed on the goods balance. Domestically, a surge in demand for alternative supplies since Russia's invasion of Ukraine has driven up wholesale and retail prices of motor fuel to the point where it now costs more than gasoline in most of Europe. The majority of the European Union is in the same predicament, with diesel costing more than gasoline in 17 of the EU's 27 member states. In other news, European markets came to a halt following their greatest gaining streak since November. Traders are now anticipating the European Commission's preliminary Consumer Confidence data for March, which is projected to be -12.8. 

GBP

The Pound Sterling closed 0.71% higher yesterday and appeared to be defensive on Wednesday, as new CPI numbers revealed that inflation reached a record 30-year high last month. Domestically, the annual inflation rate in the United Kingdom surged to 6.2% in February 2022, up from 5.5% in January, and exceeding market expectations of 5.9%. It is the biggest inflation rate since March 1992, as rising energy and food prices continue to squeeze living standards. There is rising pressure on the government to provide further assistance to help alleviate the cost of living strain. Meanwhile, traders are waiting for finance minister Rishi Sunak's Spring Statement, which is expected later in the day. In other news, the FTSE 100 rose for the sixth session on a straight-on Wednesday, reaching five-week highs for the first time since June 2021, as traders absorbed inflation data ahead of the UK's Spring Budget address.

JPY

The Japanese Yen plunged 1.11% in the previous session against the greenback amid the positive risk sentiments in the market. The Japanese currency fell further to six-year lows this week as Bank of Japan Governor Haruhiko Kuroda emphasized the need to continue the ultra-loose monetary policy to sustain the economy, considering the growing gap with the Federal Reserve's aggressive tightening agenda. Kuroda warned that rising consumer prices, fueled by greater energy and food expenses, would have a long-term negative impact on the economy, reducing corporate profits and household real income. His words contrasted sharply with recent comments from Fed officials calling for more aggressive policy tightening in the United States to battle inflation. Higher commodity prices also weighed on the Yen, as Japan is a major importer of energy and raw materials, widening the country's trade deficit.

CAD

The Loonie closed 0.18% higher in the previous session before losing its steam on Wednesday morning. The Canadian dollar surged against the backdrop of a falling U.S. dollar on risk-on sentiments and rising crude oil prices. Having said that, oil rose on Wednesday on the prospect of more sanctions against Russia, one of the world's largest crude producers. West Texas Intermediate (WTI)  futures were hovering at $110 a barrel, while Brent futures jumped to $116 a barrel. In terms of data, producer prices in Canada increased by 3.1% month over month in February 2022, marking the sixth consecutive monthly increase and the highest monthly gain since January 1980. Prices for energy and petroleum goods increased by 8.5%, with motor gasoline leaving Canadian refineries rising by 8% and diesel fuel rising by 9.2%. In other news, the S&P/TSX composite index extended advances into a sixth session on Tuesday, closing at a new record high, supported by increases in banks and technology firms.

MXN

The Mexican Peso closed 0.38% higher yesterday, continuing to extend its recovery from three months low against the greenback. The Mexican Peso surged as investors regained confidence in risky assets, while they continue to examine the impact of Russia's invasion of Ukraine, notably on growth and inflation, as well as Fed Chair Powell's hawkish views. The Mexican Peso is also benefiting from increased crude oil prices. Meanwhile, experts estimate that Brent oil will certainly reach $150 per barrel this year as a result of the supply shock caused by the European war and resilient demand from individuals eager to travel following the virus. In other news, Mexico's main stock index surged for the fifth consecutive session on Tuesday, with the S&P/BMV IPC breaching above the 55,800 barriers for the first time after preliminary statistics showed the country's economy expanded by 0.3% in February compared to the previous month.

CNY

The Chinese Yuan closed 0.06% lower in the previous session against the greenback. On Wednesday, the Yuan fell against the U.S. dollar, reaching its lowest level in a week, as Federal Reserve members advocated for more rate hikes to battle inflation. This contrasted sharply with the People's Bank of China's approach, which is widely expected to loosen monetary policy further to counteract adverse economic pressures. Economists anticipate another reduction in China's reserve requirement ratio in the second quarter, although the government has so far refrained from signaling a near-term policy shift. Investors were particularly concerned about China's worsening Covid situation and the economic impact of lockdowns. In other news, the Shanghai Composite rose 0.34% on Wednesday, while the Shenzhen Component rose 0.73%, with both indexes holding a recent rally as investors assessed the viability of Beijing's vow to stabilize markets.

BRL

The Brazilian Real closed at a new high of 0.48%, extending gains for the fifth consecutive session this Tuesday. The positive result of the Real is the confluence of several factors, including the high prices of commodities and the attractive interest rate differential between Brazil and the USA. Meanwhile, the last minutes of the COPOM meeting reveal that the Central Bank will maintain its monetary tightening speech until its long-term inflation prospects are met, as the deflation process consolidates. In this sense, the Central Bank of Brazil (BCB) is prepared for a final increment of 100 basis points in the Selic rate at its next meeting in May, however, the market already projects a Selic rate of 13.25% at the end of the year, reflecting the continuous increase in prices of fuels on the international market. On the policy front, according to local media, evangelical pastors responsible for the cabinet parallel within the Ministry of Education (MEC) charged bribes in cash and even in bars of gold to free up resources for investment in education. the scandal that is gaining more and more attention falls squarely on President Bolsonaro at a time challenging in the electoral contest.

 

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