Daily Market Pulse

Plan to overhaul U.S. infrastructure and manufacturing


Yesterday, the benchmark 10-year Treasury yield printed new highs, around 1.77%, buoying an already strong U.S. dollar which gained 0.32% against its major peers. The catalyst for this is the narrative towards another stimulus package ($3 trillion worth of spending on infrastructure). This has caused both growth and inflation expectations to surge, with the 10-year breakeven now at its highest since 2013. Later today, President Joe Biden is set to give a public speech, where he may unveil this new stimulus package. Meanwhile, markets will also get the latest read on U.S. employment from the ADP survey, before the official nonfarm payrolls print on Friday.


The single currency had another dismal day, dropping 0.42% against the greenback and hovering at its four-and-a-half month low. In a fresh blow for the troubled AstraZeneca vaccine, the German Chancellor Angela Merkel said her country will halt the use of AstraZeneca Plc’s Covid-19 vaccine for people younger than 60 starting today after a handful of new cases of severe blood clots emerged. This is another threat to Europe’s inoculation campaign, which has already been hampered by delays and political battles. On the economic data front, yesterday's advance inflation data in Germany and Spain point to slight upside risks to the Eurozone number today. German headline inflation jumped to 1.7% year-over-year in March, while in Spain, the national inflation rate also jumped to 1.3%. Later today, Eurozone consumer price and Germany unemployment figures are due.


Similar to EUR, the British Pound also failed to make any significant progress on Tuesday. The GBP closed 0.2% down against a stronger U.S. dollar, which remains well supported by another stimulus package and upbeat prospects about economic recovery. Earlier today, official data showed that the U.K. economy remained the hardest hit in the G7 by Covid-19 in Q4, with GDP a hefty 7.3% below its Q4 2019 peak, worse than the 2.4% shortfall in the U.S., 3.6% in Germany, and 4.9% in France. On the other hand, Nationwide’s data show that the housing market remains relatively buoyant, with prices rising by 1.1% quarter-on-quarter in Q1. Households’ saving ratio increased to 16.1% in Q4, from 14.3% in Q3. Today, investors and traders will digest the fresh data and closely watch U.S. President Biden’s pronouncement.


The Japanese yen took another hit from the U.S. bond market on Tuesday. The benchmark 10-year Treasury yield printed new cycle highs yesterday, around 1.77%, and as the USD/JPY pair has traditionally a close correlation with U.S. Treasuries, Japan’s currency has once more seen another decrease of 0.5%. In general, when interest rates head higher, Treasury bond prices go down, which lifts the U.S. dollar, strengthening USD/JPY prices. Looking ahead, Industrial Production, Construction Orders and Housing Starts reports, all are due later today and will bring some color for the economic performance in February.


The Loonie fell 0.29% against the greenback for the second trading session in a row and touched its lowest level in nearly three weeks as future oil prices are struggling to hold $60/barrel level. The West Texas Intermediate dropped 1.64% amid a pessimist outlook with the surging Covid cases across the world and the renewed lockdowns in Europe.  The CAD also took a hit from the prospect of a major spending package to tackle America's infrastructure needs, which also has been pushing up the U.S. dollar. It is a busy day on the economic calendar, with GDP data bringing the economic performance for January and producer prices for February showing the effect of higher commodity prices into the industrial sector. In general, both are key drivers over the day.


The Mexican peso recovered (+0.18%) some lost ground against the USD on Tuesday. In the absence of economic data, the MXN picked up on the rise of the Mexican shares index, which rose 0.33% driven by the raw materials sector. Mining and infrastructure companies have benefited from higher prices of raw materials, given the expectation of an accelerated global economic recovery, as well as the fiscal stimulus in the U.S. Today, the trading session may be marked by little liquidity and relatively low volume ahead of the national holiday Maundy Thursday.


The Chinese yuan dropped 0.04% to a four-month low against the U.S. dollar on Wednesday. The CNY remained on course for its biggest monthly weakening since August 2019. The main driver is the upbeat economic data from the U.S., which has been buoying the greenback and weighing on many other currencies, including the yuan. However, according to market forecasts, the CNY does not have the basis for substantial depreciation as the domestic fundamentals remain solid. Today, upbeat manufacturing PMI data is expected and may lead the CNY to bounce from its lows.


Markets ignored (at least for now) President Bolsonaro’s major ministerial reshuffle and the resignation of the heads of all three branches of the armed forces. The Brazilian Real edged 0.16% up against the greenback while the Bovespa stock index rose 1.1%. In total, Bolsonaro replaced six of his ministers on Monday, in a reshuffle that appears designed to forge an alliance with a powerful group of centrist lawmakers, as well as extending his political influence in the armed forces. The political earthquake happened amid the world’s worst Covid-19 outbreaks, with the country reporting 3,668 deaths and 56,704 new cases in a single day. Looking ahead, Brazil’s political outlook remains very uncertain and rising commodity prices may prompt further inflation fears. 


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