Daily Market Pulse

Investors remain cautious amid global uncertainty


The U.S. dollar index, a coefficient used to value the greenback against a basket of six major currencies, closed out yesterday’s trading session relatively unchanged (+0.03%), after swinging 0.21% lower amid broader USD weakness. Today, markets sustain cautious optimism despite the recent spike in Coronavirus cases in China and the ongoing tech crackdown, which has added pressure on the dollar. The ADP Employment Change figures are due to provide a good insight to set expectations ahead of Friday Nonfarm payrolls and U.S. job reports. Market participants are expecting ADPs to add to 695k in July, sustaining figures from the June release at 692k. Additionally, ISM Services PMI is forecast to remain above 60, but investors will keep an eye open to the ISM Services Employment Index serving as a hint towards Friday’s Job report. Additionally, Fed Reserve Vice-Chair Richard Clarida is set to speak later in the day, and he could potentially touch base on any upcoming tapering adjustments in their asset purchasing program. 


The EUR continues to edge progressively lower, recording four straight sessions with lower maximums amid global cautiousness, Covid woes dampening the market mood, and European data releases. Yesterday, Producer Price Index figures posted 10.2% vs 10.3% annualized, while market services PMIs failed to impress, posting a weak 59.8 vs 60.4 during the early hours of today’s session. The European Retail Sales figures for June are expected at 4.5% year over year, as it anticipates a slowdown from previous figures released at 9% for May.   


The British Pound rallied 0.26% against the greenback amid improving Covid data coming from the U.K, while cases continue to mount in the U.S. and China. The latest daily report posted 21k daily new cases, over a 50% reduction from the peak witnessed a couple of weeks ago. However, cases in the U.S. and China keep investors nervous, as an outbreak in the leading economies could significantly hinder the global recovery, especially after mixed PMI reports. However, despite the momentum in Sterling, we expect market participants to remain cautious ahead of Thursday's Bank of England (BoE) Monetary Policy Committee (MPC) to assess the forward guidance on interest rates and inflation.   


The Japanese Yen continued to edge higher during yesterday’s trading session, appreciating 0.25% against the dollar. Increasing Covid woes in China, Australia, and the U.S. keep markets cautious, with capital flows benefitting the safe-haven appeal of the Japanese currency. The market uncertainty affected mostly Asian stocks, capping the upside on U.S. equity markets while Beijing proceeds with its renewed crackdown efforts on the gaming industry. Jibun Bank Services PMI posted better than expected results for July, releasing 47.4 vs 46.4 previously anticipated and Foreign investment figures could confirm the risk-off inflows.  


The Loonie edged 0.24% lower amid increasing Covid cases in the U.S. and China, which compromises the prospects and expectations of crude oil demand and its price. The West Texas Intermediate (WTI) fell 1.48% amid growth concerns and mixed PMI data which triggered a Crude sell-off as fears of a possible recovery slowdown increased with the risk of lockdowns. However, the economic calendar remains light for the Loonie, with important figures coming up on Friday with Canadian Job reports as well as in the US.    


The Mexican Peso registered gains despite the broader cautious mood in global markets. The performance of the Peso comes off the back of improved Gross Domestic Product forecasts from Mexico’s Central Bank, which released its July survey on the expectations of participants in the private sector. The Mexican economy is now forecasted to grow 6.06% by the end of the year, increasing from 5.8% previously released in June. The positive revision added to the appreciation of the MXN despite the broader risk-off sentiment.  

CNY – The Onshore Yuan fell 0.07% against the dollar amid increasing Covid cases in China which keep the markets on edge. The latest outbreak has so far infected 400 people in 25 cities, and Chinese authorities have announced measures to control the spread of the virus. Domestic flights in several cities have been canceled while Beijing has suspended 13 rail lines and kicked off massive testing in Wuhan and Beijing to control further infections in the country. Chinese officials said that most Delta patients had shown mild symptoms, and preliminary studies have indicated that China’s vaccines are effective against the strain. 


The Brazilian Real fell 0.57% against the USD amid diminishing risk appetite and growing Covid woes in the U.S. and China. However, the Brazilian government announced that Brazil’s exports totaled a record USD 25.5 billion in July while USD 18.1 netting out a Trade Surplus of USD 7.4 billion. Herlon Brandao, deputy secretary for foreign trade, said that Brazil has never exported so much in the first seven months of the year while the behaviour in imports, while not a record high, suggests a sustained recovery from the pandemic.


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