Daily Market Pulse

U.S. Dollar steps back ahead of key inflation figures


The U.S. Dollar Index, a coefficient that tracks the price action of the greenback against a basket of major currencies, stepped back 0.13% supported by low U.S. 10 - Treasury yields. The narrative around the Fed being open to discuss tapering stimulus before the end of the year keeps building momentum while the market awaits key inflation data that might trigger policy adjustments. Today the U.S. Bureau of Economic Analysis will release Personal Consumption Expenditures (PCE) Price Index data setting market expectations at 2.2% yearly variation. If PCE outperforms expectations, we could expect this to spark a spike in U.S 10-Year Treasury yields pushing the greenback higher. Additionally, we are expecting preliminary Gross Domestic Product figures for Q1 estimated at 6.4% year over year. The Feds Repo facility that provides liquidity to money-market funds and institutions for short-term funding hit record highs of USD 485 billion, suggesting that the market is flooded with dollars, supporting the downtrend of the US.


EUR remained unchanged (+0.05%) in a session where Euro bond yields dropped ahead of the interventions from European Central Bank (ECB) Vice president De Guindos, who failed to provide any meaningful input to the market. However, Isabel Schnabel, a member of the ECB board, noted that the recent yield rise is a symptom of an improved outlook, confirming that this is what the ECB is looking for. The latest increase in Euro bond yields has helped the overall appreciation of the EUR as speculation over tightening monetary policy intensifies amid stronger economic fundamentals. Christine Lagarde, President of the ECB, said last week that it was too early for the ECB to discuss slowing the pace of their stimulus purchase program. As mentioned before, the outlook for the Eurozone is very positive, and it has been confirmed by recent german IFOs exceeding expectations. Today we expect Consumer confidence and Business Climate for the bloc to continue this trend.


Sterling had a positive session against the USD, recording a 0.6% gain. The pound gained momentum after Gertjan Vlieghe, a member of the Monetary Policy Committee (MPC), said that the Bank of England (BoE) was likely to raise rates well into next year while noting an increase could come earlier. Fundamentals remain strong for sterling but different analysts suggest that a catalyst is missing to see a breakthrough on the upside of Cable. Today we don’t anticipate any particular volatility as there are no events scheduled in the economic calendar.  


Yesterday the Japanese Yen dropped 0.7% against the greenback, erasing the modest gains from the previous 10 sessions. The Japanese currency is under pressure due to the recent cut in the government outlook for May, the second time in the year. Furthermore, the European Union has backed Tokyo’s hosting of the Olympic Games this year, with EU-produced vaccines helping Japan in its battle against Covid. Today we expect an exciting flow of macroeconomic data with the Japanese Unemployment rate, Tokyo Core Consumer Price Index (CPI), and Tokyo CPI as the main drivers of the day. 


On Thursday, the Canadian Dollar recovered the modest losses from its previous session against the greenback (+0.41%). Overall, the pair remains unchanged since the beginning of the week and a lack of fundamental drivers has kept current levels firm with constant pressure on the USD. However, the Loonie is still the top performer G10 currency against the USD, mainly driven by slowly rising oil prices, which have remained solid. Today we don’t expect any major announcements or macroeconomic releases, and  meanth the pair will likely be driven by commodity activity. 


Mexico’s President Andres Manuel Lopez Obrador has moved to dissolve different autonomous government bodies arguing that these institutions are corrupt and dominated by “neoliberals”, who oppose his government. The latest order from the government aims directly at the Central Bank of Mexico (Banxico), which has raised serious concerns over the independence of its monetary policymaker and jeopardizes the country's future financial stability. However, the news of political turmoil has not affected the Mexican peso in a significant way. 


The Chinese Yuan continued to appreciate, continuing its five straight days of profits after registering a 0.2% gain yesterday.  The move has been due to a general weakness on the USD amid stronger Chinese fundamental and looser monetary policy approach from the People's Bank of China (PBoC). However, tensions have started to mount again between the U.S. and China, as president Biden has reopened the COVID investigation to determine the origins of the virus . China’s foreign ministry accused the U.S. of being political and blame-shifting as the American investigation aims to determine if the virus is linked to a research lab in Wuhan. 


BRL registered gains of 1.34% against the USD mainly driven by positive current account balances and a weaker performance from the greenback. The Brazilian Institute of Geography and Statistics released the Unemployment Report for Q1 2021 recording unemployment at 14.7%, with an increase of 0.8% from the previous quarter. In the middle of the current health crisis, the country is gearing up for the next presidential election, which will place Jair Bolsonaro and Lula da Silva face to face for Brazil’s top job. The recent job report puts further pressure on the administration of Jair Bolsonaro as continued controversy looms over the administration with questions about the handling of the pandemic and corruption scandals. . Today we expect Inflation index from May, which will provide some insight into the wholesale sector's price behavior.  


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