The index of the U.S. currency gained 0.35% over a basket of major currencies and on Thursday stood near its highest level since November. The USD gained 2% so far this month, mainly supported by a confluence of optimism over improving U.S. economic data, the rollout of vaccines, and rising Treasury yields. Yesterday, U.S. Labor Department data reported that claims for unemployment benefits dropped to 684K, a one-year low last week, more evidence that the U.S. economy is recovering as the public health situation improves. In his first formal news conference, U.S. President Joe Biden said that he would double his administration’s vaccination rollout plan after reaching the previous goal of 100 million shots 42 days ahead of schedule. Today’s calendar is relatively busy with Personal Income, Spending & Consumption for February, and Michigan Consumer Sentiment for March due.
Market players were once again cautious yesterday and risk-off sentiment prevailed as the main narrative. The Euro dropped 0.38% against a stronger greenback for the third trading session in a row against ongoing concerns about an increase in Covid-19 cases in Italy, France, Spain, and Germany. For instance, German Chancellor Angela Merkel signaled that Germany would declare France a high-incidence virus area, requiring a negative test for anyone entering from the country. Elsewhere, according to media reports, Italian Prime Minister Mario Draghi urged EU nations to act against pharma companies responsible for delays. On the economic data front, the Germany IFO Business Climate for March is due. This index measures entrepreneurs' sentiment about the current business situation and their expectations for the next 6 months.
The Cable kept firm against a stronger dollar trend, breaking a five-day losing streak after edging 0.34% up on Thursday. Positive remarks from Bank of England Chief Economist Andy Haldane also contributed to lend support to the GBP. Mr. Haldane said that around £150bln has been saved by households over the last year, which, if spent, could fuel a post-lockdown economic boom. Looking ahead, investors will digest the U.K. retail sales data published earlier today. Retail sales volumes, including petrol, rose by 2.1% month-to-month in February, bringing more evidence that the economy is reviving before lockdown rules have eased.
The Japanese yen slid 0.41% against a stronger greenback on Thursday. The U.S. currency is supported by the upbeat economic data showing that the country’s economy is recovering, the rollout of Covid-19 jabs, and rising Treasury yields. Domestically, Tokyo Consumer Price Index deflation moderated to -0.2% in March, from February’s -0.3%, in line with the market’s consensus. The slight recovery was due to higher oil prices, which pushed up private transportation costs. Despite economic fundamentals, the JPY has remained trading within a narrow band since the beginning of March. The technical figure may be evidence of further JPY depreciation.
The Loonie dropped 0.21% to a two-week low against its U.S. rival on Thursday, with U.S. crude oil prices falling 4.28%. Although there are concerns about supply disruption as the stranded container ship in the Suez Canal may block the vital shipping lane for weeks. Ongoing worries about a further reduction in oil demand due to the Covid-19 pandemic’s worsening situation, especially in Europe, is making markets jittery. Today, the Budget Balance numbers will be watched by investors, who will be looking for further clues to assess the economic recovery. Meanwhile, the market will continue to focus on the ship stuck in the Suez Canal.
The Mexican peso recovered some lost ground and edged 1.26% up against the U.S. dollar, on Thursday. Investors positively reacted to Mexico’s Central Bank decision to hold the main interest rates at 4.0%, the lowest since 2016. Rising inflations, driven by rising energy prices was one of the reasons to keep the rate unchanged. On the one hand, the differential interest rate between the U.S. and Mexico is still attractive and favors the MXN. On the other hand, the Mexican economy is still weak and stuttering to recovery through Q1.
On Thursday, the Chinese yuan inched 0.26% down and Chinese shares fell near a three-month low hit earlier in the month. The Sino-U.S. confrontation is still affecting market sentiment. However, the CNY’s losses were limited as China’s Central Bank reinforced that the bank will maintain credit support continuity and stability for small and micro firms. Looking ahead, tensions between China and the West will continue to weigh on the CNY. Earlier today, China sanctioned organizations and individuals in the United Kingdom over what it called "lies and disinformation" about Xinjiang.
Yesterday, official data showed that the mid-month Consumer Price Index (IPCA-15) rose to 5.5% year-over-year, from 4.6% in February. The rate is the highest in over four years and above the central bank’s upper limit of its target for this year (5.25%). Transportation costs, alongside housing/utility prices, were the main drivers. In general, inflation remains high and the rate may further rise in Q2 due to higher commodity prices and weaker BRL. Against this backdrop, the Brazilian real closed 0.5% down against the U.S. dollar. Looking ahead, the worsening of the pandemic situation in Brazil will continue to weigh heavily on the BRL’s price.