Daily Market Pulse

Dollar remains subdued amid risk-on vibes


The U.S. dollar index, a benchmark used to track the performance of the greenback against a basket of six major currencies, remained subdued, retracing 0.55% during yesterday's trading session amid the U.S. Food & Drug Administration (FDA) fully approving the Pfizer/BioNTech Covid-19 vaccine, and tapering expectation from U.S. policymakers fading away.  The recent approval from the FDA will allow companies and institutions leeway in acquiring the immunization jab, moving away from emergency authorizations only and underpinning the S&P 500, which extended new all-time highs amid growing optimism. Additionally, market participants are interpreting the fact that the Jackson Hole Symposium will be held virtually as a sign that the Fed will not withdraw stimulus when it is forced to scale back operations due to the virus. The positive news around the vaccine, and expectations of extending stimulus coverage, has nurtured the market sentiment, diminishing the demand for dollars amid a restoring risk sentiment that gave certain support to commodities and crude oil prices during the session. Moreover, investors will stay tuned to the virtual G-7 meeting where global leaders will discuss the situation in Afghanistan. The U.S. forces are due to leave by the end of August, but allies urge extending the mission to assist the evacuation of Afghans from Taliban control. Later today, New homes sales are expected to increase in July from 0.676 Million to 0.69 million.   


The EUR continued to push higher during yesterday’s trading session against the greenback, advancing 0.52% amid a restoring risk-on sentiment in global markets. The current market drivers keep adding pressure to the dollar rather than underpinning the common currency, with risk flows being the main forces behind the current swing. In fact, European data released yesterday failed to impress with PMI marginally below market consensus, while Consumer Confidence contracted more than previously anticipated, releasing -5.3 versus -5 expected. Today, the flow of data will remain quiet with a single speech from ECB’s Schnabel later on in the day. Euro investors will still keep an eye open for ECB’s minutes from its July meeting, where expectations are set very low. However, committee members might infer that it is too soon to discuss reducing stimulus purchases, which could review the upside potential of the current Euro bounce back. 


The  Pound Sterling had a strong session against the dollar amid risk-on flows undermining the demand for the dollar, edging 0.74% higher. The momentum in cable comes off the back of positive vibes surrounding tapering expectation being less imminent than what the market narrative was inferring during the last couple of weeks. The persistent Delta variant and the impact on the economy keep traditional hawks cautious ahead of the Jackson Hole Symposium. Moreover, U.K. survey data released during yesterday’s trading session showed that Britain’s post-lockdown economic rebound slowed down sharply in August amid the impacts of the Delta variant on the economy. IHS Markit PMIs dropped for the third consecutive month and slid at a faster pace than what analysts previously anticipated, posting 55.3 vs 59.2 expected. 


The Japanese Yen remains under pressure, although it continues to hold the current support levels amid optimism in the global market and a downtick in U.S. treasury yields. The overall market optimism keeps market participants bidding against the greenback, which limited the downside exposure of the Yen after The Jibun Bank Japan Services fell 52.4 vs 53.4 previously anticipated. Moreover, the Yen’s downside risk seems to be capped amid government efforts to step up vaccination by starting the distribution of Astrazeneca’s virus vaccine from Monday, inducing optimism in the market.    


The Canadian dollar corrected sharply, recording 1.26% gains against the greenback amid risk-on mood which has kept the dollar on the back foot against most of its peers and underpinned commodity prices. The West Texas Intermediate (WTI) rallied strongly, advancing 6.32% and bouncing back above USD 66 per barrel after testing 4 months lows. The bounce in crude oil prices was triggered by bears taking profit from the recent drop and risk perceptions building up momentum, as U.S. policymakers are expected to announce this week that the current stimulus levels will remain unchanged amid impacts from the Delta variant in the economy during the Jackson Hole Symposium.    


The Mexican Peso sustained its levels despite the recent bearish run we witnessed during the past week. Mexico’s National Council for the evaluation of social development policy (Coneval), reported that the number of workers living below the poverty line has decreased in the second quarter of the year. The report showed that the number of poor people has decreased 0.9%, from 39.4% down to 38.5%. Government officials attribute the reduction of poverty to a 2.9% increase in real labour income, a 3.1% increase in the nominal wage bull, and a 4.9% increase in the number of people employed. However, the report also showed that the poverty figures are still worse than pre-pandemic levels.  


The Chinese Yuan advanced 0.16% against the greenback amid a positive risk-on mood which keeps the safe-haven buck on the backfoot. Moreover, following the efforts from Chinese policymakers to support the economy amid the latest outbreak of the virus, which has made authorities impose restrictions in the country, China’s overnight interbank jumped to a two-month high as rising local government bonds sales tightened liquidity in the Chinese banking system. The PBoC vowed to stabilize the supply of credit and support the real economy in its latest meeting after credit expansion slowed down in July. 


The Brazilian Real remained relatively unchanged, advancing 0.22% during yesterday's trading session amid recovering investor sentiment in the global market and further political turmoil in the country. President Jair Bolsonaro and the Supreme Court have declared open political war, and the head of state has formally asked the Federal Senate to open an impeachment process against the Supreme Court Magistrate, Alexandre de Moraes, who has initiated a number of investigations and allegations against the President and his cabinet. Additionally, domestic tourism in Brazil declined in the first six months of the year, in comparison to the same period last year. Tourism in Brazil added USD 10.74 billion, declining 3.1% year over year amid the recent outbreak of the coronavirus and the development of new strains which has kept tourists cautious. 


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