Daily Market Pulse

Sell-off momentum of USD eases amid soft growth figures


The U.S. dollar index, a benchmark used to assess the performance of the greenback against a basket of six major currencies, fell 0.41% after dovish interventions from Jerome Powell weighed on the greenback as investors reposition towards riskier assets. The Fed’s stance remains accommodative, with interest rates unchanged and hints of tapering in upcoming meetings will be a hawkish resource for policymakers. However, the officials still believe that current inflationary pressures are transitory and that “substantial further progress” needs to be made, before considering adjusting monetary policy. The sustained stimulus remains a relief for market participants as mounting Covid cases sour the market mood amid forecast adjustments from analysts and economists. The U.S. Gross Domestic Product (GDP) failed to impress on yesterday’s preliminary Q2 results, releasing 6.5% annualized growth vs 8.5% previously anticipated. The growth figures surprised market participants as corporate earnings reports continued to beat estimates across the board suggesting a pick up in economic activity driven by households spending money outside their homes which kept Core Personal Consumption Expenditures above quarterly expectations posting 6.1% vs 5.9% previously anticipated. However, disappointing figures eased the sell-off of the momentum of the dollar which soured the market mood, while we do expect annualized figures later today for the favourite indicator of inflation used by Fed officials. Additionally, Michigan Consumer Sentiment and Chicago Purchasing Managers’ Index are due to provide insight into the morale and economic activity in the country. 


The EUR extended gains against the USD, closing 0.37% higher amid improving data in the Eurozone backed by solid German unemployment and consumer price index data throughout the course of the day. The latter in contrast with the dovish U.S. Federal Reserve built up momentum for the common currency which was sustained during today's trading session ahead of Gross Domestic Product figures in Germany followed by Consumer Price Index, Unemployment and Gross Domestic Produce in the Eurozone. The spread of the coronavirus remained below 150k new cases daily in the bloc which has helped to restore sentiment across the member states. Any improvement in Covid should continue to feed into the appreciation of the Euro.    


The Sterling Pound closed its seventh consecutive session recording gains against the dollar, by advancing 0.42% amid dovish remarks from U.S. policymakers which undermined the valuations of the dollar, soft U.S. data, and a steady decline in coronavirus infections in the U.K. which has nurtured the risk-on sentiment. Given the improving conditions on the Covid front, the U.K government announced that it has finalized quarantine status for fully vaccinated E.U. and U.S. visitors. Despite the encouraging news, Brexit continues to weigh on the British Pound as the E.U. is passing legal action against the U.K. over the Northern Ireland protocol.


The Japanese Yen edged 0.39% higher against the greenback amid a broader dollar weakness following dovish comments from Fed officials and poor Gross Domestic Product data in the U.S. which kept the dollar on the back foot. However, market participants seem to be building up risk on momentum as the global recovery has shown resilience throughout the course of the latest Covid wave. Early Friday data reported a peak in the labour market, with unemployment figures releasing upbeat results at 2.9% vs 3% previously anticipated while Retail Trade continues to lag, falling from 8.3% previously released to an astonishing 0.1% for May amid the outburst of the Delta variant in Japan.  


The Loonie advanced 0.62% against the dollar amid Fed officials sustaining a dovish note over the short term and restoring upbeat sentiment off the back of better than expected earnings reports. However, the Canadian dollar consolidated gains on constructive economic data and higher oil prices fed by restoring risk sentiment. Consumer Price Index figures posted a slowdown in headline inflation posting 3.1%, missing expectations at 3.2%, and dropping from 3.6% previously released. The softer inflation figures support the narrative from BoC which has flagged that current pressures are transitory and that they are expecting to ease throughout the course of the year helping the optimistic note in market sentiment. The West Texas Intermediate (WTI) rallied 0.32% adding support to the Loonie to extend further gains.      


The Mexican Peso rallied 0.31% amid risk-on sentiment following dovish comments from Fed officials, which supported the appreciation of riskier assets and crude oil prices. However, despite the bullish momentum, Mexico’s national statistics institute released its national survey of house income and expenditure, reporting that the average quarterly income per household was MXN 50,300 (USD2,500) in 2020, 5.8% lower than average registered in 2018. Coming up, Gross Domestic Product figures are due to be released, anticipating 19.8% annualized growth picking up from a previous release of -3.6% due to the pandemic.  


The Chinese Renminbi posted 0.44% gains against the dollar following a dovish Federal Open Market Committee, which induced a broader sell-off on the USD. The Chinese Yuan is set for its best weekly gains over two months due to recent investor sentiment swinging amid regulatory crackdown and coronavirus jitters. The Onshore Yuan seems to be tracking the performance of the Chinese stock market, as investors feared huge losses could trigger capital outflows. The Chinese equity market has been under severe pressure following China's tech crackdown banning for-profit tutoring in specific subjects and launched an anti-monopoly campaign against tech giants. The PBoC eased market tensions by deploying over USD 4.2 billion in the stimulus, which has helped restore a certain level of balance in the market.


The Brazilian Real extended gains up to 1.09% during yesterday’s trading session, but as momentum eased, the Real edged lower, closing 0.32% higher against the dollar. The Brazilian currency recorded its fourth straight session appreciating against the dollar, dented by Fed’s dovish comments. Upbeat economic data and expectations of upcoming rate hikes have lifted the currency of late, with job reports showing its most robust formal job growth in the half of the year since 2010. However, the political scene and Covid concern has limited the potential for BRL. Aggregated infections in Brazil are approaching 20 million and the health minister urged citizens to get their second jab to counteract the effects of the virus. 


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