Daily Market Pulse

USD

The latest US PPI inflation data hit the headlines for all the wrong reasons yesterday, and despite a fall from 6.5% to 6% for headline PPI on a yearly basis, there was a jump of 0.7% (MoM) and 0.5% for Core inflation, which mirrored the recent CPI releases, highlighting that US inflation remains far stickier than had been hoped. Add into the mix those strong payrolls, Retail Sales, and other key US data releases of late, and any hopes of an imminent Fed pause look to have completely evaporated. The Fed’s Mester and Bullard even began talking about the prospect of 50bps rate hikes again yesterday. Cue market meltdown, a big sell-off in risk assets and a stronger dollar, with the dollar index rising another 0.7% through yesterday, cementing those strong gains since the beginning of the month. 

 

EUR

The sudden fall from grace for the single currency accelerated through yesterday, and whilst the ECB may be maintaining their hawkish rhetoric on future rate hikes, barring possibly Panetta, the single currency seems powerless to offer a reasonable defense against that resurgent dollar. EUR/USD dropped another 0.25% through yesterday, dropping to levels not seen since the beginning of the year. Next week is all about the latest regional inflation data, which, if softer, will offer the single currency little support at the moment.

 

GBP

Sometimes it is easier to beat expectations when those expectations are at rock bottom. UK economic data, specifically this morning’s UK Retail Sales data, may fit into that category. Retail Sales jumped by 0.5% over the past month, and whilst nothing like the 3% gain we saw from the US earlier in the week, the data still handsomely beat analyst expectations. Saying that, GBP/USD continues to correct lower, dropping by another 0.9% so far today, as the dollar continues to wipe the smile off the face of just about every major currency out there at the moment. 

 

JPY

USD/JPY looks to be the pain trade out there just now. With the yield on the 10-year JGB nailed firmly over the BoJ’s ceiling of 0.5% all week, yen strength might be your expected outcome, but the strong dollar has left the yen bulls stuck firmly on the ropes, and hoping that someone will quickly throw the towel in. USD/JPY has rallied over 4% since this time last week. Ouch, that is painful, at least for the yen bulls.

 

CAD

Could USD/CAD be finally making a breakout of the well-trodden 1.3300 – 1.3500 range? With the pair gaining another 1.2% through this week, the greenback looks like it may be about to break the Loonie’s defense. Saying that, the dollar bulls still need to watch out for the BoC’s possible ‘reverse pausing’ and those oil prices, which have the potential to scupper the greenback’s intentions, even if only at the margin.  

BRL

The resurgent dollar theme also played out strongly amongst EM currencies throughout this week, as USD/BRL edged higher through yesterday and USD/MXD rallied by around 0.5%, with the pair moving further away from the recent low, despite the bigger-than-expected rate hike from Banxico this time last week. USD/CNY has rallied roughly 1.5% on the week.