Daily Market Pulse

Dollar comeback on Powell’s testimony


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, suffered a 0.36% loss on Tuesday’s closing session followed by a modest comeback on Wednesday’s opening, partially recovering the ground. The better note for the dollar is due to rising US treasury yields, up by 1% for the day and by Powell’s testimony on Tuesday. In the testimony, Powell mentioned that the committee is considering the accelerated tapering option in the next meeting, while as the inflation pressure is no more transitory, the committee will also discuss early rate hike opinion. Market participants, in the latter part of the day, will get the economic data release of ISM Manufacturing, ADP report, and Markit’s final Manufacturing gauge followed by second testimony from Powell and speech by Treasury Secretary J Yellen. 


The Euro gained 0.42% against the greenback on Tuesday’s closing, followed by a modest pullback on entering the trading hours of Wednesday. European Central Bank Governing Council member Pablo Hernandez de Cos on Tuesday mentioned that inflation pressure and the new virus variant are pointing towards a negative revision to the 2021 growth forecast. Additionally, Spain's Economy Minister Nadia Calvino, on Wednesday, mentioned that inflation in the US and Europe are different, indicating that the price hike in Eurozone is temporary, which has surged to 4.6% annually in November. This caused the slight pullback of the Euro during the early hours of Wednesday. Moreover, Dollar demand surging across the board adds further pressure on the Euro. 


The Sterling retreated 0.12% against the greenback during Tuesday’s closing, followed by regaining its modest form in the early hours of Wednesday. Yesterday’s downside comes after the announcement by a leading manufacturing company indicated that the current set of vaccines are proved to be less effective against the Omicron. Additionally, the UK PMI data was released and finalized at 58.1 against the expectations of 58.2, however, the data release failed to make an impact on the currency. Today’s modest upward momentum lacks further direction amid an absence of Brexit-related headlines and the strengthening of the Dollar due to Powell’s hawkish comments. Market participants will take cues from the US economic docket data release and Powell’s second testimony to find short-term trading opportunities for Sterling. 


The Japanese Yen surged 0.32 % against the U.S. dollar on Tuesday’s closing, following a pullback in favor of the US dollar during the European trading session on Wednesday. The Dollar’s upwards traction during early hours is supported by a combination of factors. The global risk sentiment stabilized as investors started reassessing the risk of the new virus Omicron. US treasury yields surged by 1% in the day due to Powell’s hawkish speech on faster tapering and inflation concerns, which in turn, supported the dollar against the yen. Later today, Market participants will take cues from broader market sentiments and US docket data releases to provide fresh impetus. 


The Loonie suffered 0.30% against the greenback on Tuesday’s closing, followed by regaining its upwards momentum during the early trading session on Wednesday. The US Dollar dropped to its lowest levels of the weekly trading range in the first few hours of the European trading session against the Loonie. The Loonie comeback is attributed to a pick-up in oil prices and subdued Dollar demand. The WTO oil pieces recovered from a three-month low and rallied 3%, providing support for the black gold, in turn, strengthening the commodity-linked Loonie. Meanwhile, the US Dollar did not gain major traction in spite of Powel’s testimony and rising treasury yields. Market participants, during the day, will take cues from US macro releases and headlines from the OPEC meeting, which will influence oil price dynamics and provide fresh impetus to the Loonie. 


The Mexican Peso surged 1.04% against the US Dollar on Tuesday’s closing. This is the second consecutive gain posted by the Peso against the greenback. The US Dollar feels the bearish tone amid the subdued market sentiment caused by the new Omicron virus. Moreover, the high inflation rate in Mexico provides assurance for an early rate hike by Banxico, which strengthens the Peso at least for now. Looking forward, market participants will be looking out for the US Dollar price index, which is set to be influenced by Powell’s second testimony later today, and Omicron virus-related headlines which will provide fresh insights for the Peso.


The Chinese Yuan surged by 0.37% against the US Dollar at the closing of Tuesday’s session. The upwards momentum is supported by economic data releases in China, as well as the rise in offshore Yuan due to strong corporate demand, triggered by Chinese firms selling Dollars to Yuan to offer service payments. The demand remained resilient despite the Hawkish tone from Fed chair Powell on Tapering and rate hike, which pushed the US treasury yields higher. Meanwhile, the Chinese Foreign exchange regulatory body is forming a pilot for Yuan futures trading, intended to improve hedging against the currency risk in a market where the recent appreciation in Yuan is termed as “herd effect”. 


The Brazilian Real suffered 0.09% against the greenback on Tuesday's closing. This adds one more day that the market has been assessing  (and pricing) the risks of the new strain of Covid while the Brazilian currency faced difficulties to recover some ground. Reflecting the imminent risks of new Covid restrictions that would slow down global consumption, agricultural commodity futures prices plunged this Tuesday (i.e. corn -2.53%, sugar -3.07%, soybeans -1.95%, cotton -4.49%). This market environment is also an obstacle to a potential BRL correction. The Constitution and Justice Committee (CCJ, in Portuguese) of the Brazilian Senate will hold a confirmation hearing for André Mendonça, appointed by President Jair Bolsonaro for a seat on the Federal Supreme Court. Meanwhile, the CCJ approved the text of the PEC dos Precatórios and that will now be voted on the Senate's floor. Voting must take place today at 4:00 pm (Brazil time) and, if approved, the PEC of Precatórios will make room for the payment of R$ 400 (~$71) per month to approximately 17 million beneficiaries of Auxílio Brasil (national financial aid program) in 2022, when President Jair Bolsonaro will seek re-election. After passing through the Senate, the project will still need to be considered again in the Chamber of Deputies, in two rounds.


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