The U.S. Dollar Index, a useful tool to value the greenback against a basket of major currencies, advanced 0.18% as Delta variant jitters continue. The greenback was backed by strong U.S. Consumer Confidence exceeding expectations amid upbeat views about the economy. However, President of the Federal Reserve Bank, Richmond Thomas Barkin, said that despite higher than anticipated inflation results, the U.S. labor market is still far from its pre-pandemic levels and that further employment progress is required for policymakers to start tapering the bond purchase program. Furthermore, Non-farm Payrolls on Friday will be closely followed by market participants as it could bring important volatility to the market. The dovish interventions from Barkin diluted some of the momentum created by the U.S. Consumer Confidence results without compromising on further gains, and the overall optimism which sustained equity markets edged higher, alongside U.S. Treasury Yields. Coming up, market participants will be tuned to ADP Employment Change, Chicago Purchasing Managers’ index, and Pending Home Sales results.
The EUR depreciated 0.23% against the greenback amid strong U.S. consumer confidence results which bolstered the demand for dollars, and soft German Inflation results which were expected to drag the common currency as Consumer Price Index fell from the previous release. Despite the bearish EUR move, the Economic Sentiment Indicator posted a solid 117.9, beating expectations at 116.5 and the previous release of 114.5, suggesting high morale in Europe alongside Consumer and Industrial confidence results. Later today, the German unemployment data and European Consumer Price Index will provide fresh data for potential impetus in the market.
The British pound fell 0.27% against the greenback amid Delta variant jitters and poor housing market results. The Nationwide Housing Prices failed to impress releasing 13.4% growth vs 13.7% expectation suggesting a slowdown in the housing market. However, mortgage approval improved to 87.5k alongside Consumer Credit which posted GBP 0.28 billion. On the other hand, Brexit concerns have also weighed on Sterling as Boris Johnson, Prime Minister of the United Kingdom, said that the government expects to agree with the EU an extension to the grace period on customs checks to Northern Ireland.
The Japanese Yen kept registering mild gains against the greenback, advancing 0.08% amid increasing concerns over the Delta variant in the Asia Pacific region which have started to call for caution among investors. The JPY benefited from strong retail sales which released 8.2% growth vs 7.9% anticipated. However, the momentum diluted after disappointing unemployment figures posted 3% vs 2.9% previously anticipated. Later today, insight into the Japanese Consumer Confidence Index, Housing Starts, and Industrial production might provide fresh impetus to the market.
The Canadian dollar retraced 0.59% against the greenback amid a resurgence in COVID-19 cases which has increased the demand for USD as investors look to de-risk their portfolios. Although Crude Oil prices edged higher ahead of the OPEC + meeting due today, the Loonie failed to recover lost ground from the price activity of oil which we usually see supporting the CAD. Outcomes from the OPEC meeting might add or remove support to the Loonie while a lack of data from Canadian institutions keeps the pair driven by pandemic jitters and risk-off sentiment.
The Mexican Peso remained relatively unchanged (0.04%) against the dollar as strong fundamentals offset growing Delta variant concerns. Mexico’s National Statistics Institute reported total export figures grew 125% year over year while imports picked up 87.5% year over year, leaving a Net trade surplus of USD 340 million vs a trade deficit of USD 3.4 billion in May 2020. The encouraging trade balance figures provide a positive outlook for the Mexican economy. The country has proven to have strong fundamentals, but government policies have undermined business confidence and limited the upside for the MXN. However, policymakers have added a hawkish stance which has been a strong driver in the latest interest rate hike.
The Chinese Yuan advanced 0.07% against the greenback amid Delta variant jitters, especially in the Asia Pacific region. The People's Bank of China adjusted its monetary policy stance, draining liquidity to temper credit growth while the Fed still holds. Chinese Policymakers seem comfortable with current interest rate levels and tapering will be the main driver of tightening monetary policy for the time being. On the other hand, once the Fed starts to hike, the PBoC should ease monetary policy in contrast to the U.S. in order to calibrate domestic requirements. That being said, we believe interest rate differentials might narrow looking into 2022, affecting the cost of hedging for active managers.
The Brazilian Real fell 0.21% against the dollar during yesterday’s trading session as the risk-off sentiment related to COVID-19 strains kept international markets sour. Moreover, the Brazilian Consumer Price Index and Inflation Index posted benign inflation results for the short-term providing some room to breathe amid the underlying water crisis in the country which has boosted the current spike in inflation. Later today, Unemployment figures and Budget Surplus will provide fresh data to market participants which can ignite new impetus on the pair.