Daily Market Pulse

Dollar picks up ahead of key inflation readings

5 minute read


The U.S. dollar index, a benchmark tool used to assess the performance of the greenback against a basket of six major currencies, advanced 0.16% during the early hours of today’s session, recovering losses recorded yesterday. Tuesday’s macroeconomic data and policymakers’ intervention failed to bring any surprises for market participants, easing down the mood experienced during yesterday’s session. However, as investors eye upcoming Consumer Price index reading and jobless claims reports in the U.S., the cautious market mood pushes the dollar marginally higher against most of its peers. Market participants will closely monitor the ongoing Brexit negotiations and Northern Ireland Protocol, as tension continues to mount with threats of triggering Article 16, which would have a severe impact on both parties. On the other hand, the U.S. equity markets corrected at Tuesday’s close after hitting new all-time highs during previous sessions and now take a breather. Moreover, U.S. Treasury Yields rallied 1%, although these remain below 1.5%. President Biden and his Chinese counterpart Xi-Jinping have agreed to meet next week virtually, although no date has been set yet. 


The common currency endured some selling pressure during the early hours of the trading session after failing to climb above 1.16 levels against the greenback during yesterday’s session. Klass Knot, European Central Bank officials, reiterated yesterday that conditions for a rate hike were unlikely to be met in 2022, extending further dovish narrative on the European monetary policy. Today, the German inflation readings will be featured in the economic docket, although the release is the revision of its previous estimate and we don’t expect any major market reaction, while U.S. headline prints could have a bigger impact during today’s session.   


The British Pound sustains pressure from the greenback amid Brexit jitters and a broader bearish market positioning. The one-month risk reversals, a gauge of calls and puts, snapped a two-day downtrend, closing its positioning in neutral, suggesting that the current bearish momentum of Sterling might be fading away. However, recent comments from Leo Varadkar, Ireland’s deputy Prime minister, suggest otherwise. The Irish PM raised concerns as the government has started preparations of contingency plans for the imminent U.K.-E.U. trade war that is coming up on the horizon, as the spokesman said that triggering Article 16 would precipitate the collapse in relation with the European Union. 


The Japanese yen snapped four consecutive sessions recording gains against the greenback, retracing 0.28% during the early hours of today’s session ahead of U.S. inflation readings and a pick up in U.S. Treasury Yields, which underpinned the greenback. The upcoming inflation readings reversed risk appetite overnight, weighing on the safe-haven Yen. Moreover, Prime Minister Fumio Kishida is set to map out and secure funding for a stimulus package worth more than JPY 30 trillion (USD 265 billion), as the third-largest economy in the world has been hit severely by the Coronavirus pandemic. Additionally, analysts flagged that Japan's real wages declined in September for the first time in three months, as inflation picked up faster than growth in nominal pay. 


The Loonie remains firm against the dollar, capitalizing 0.13% off the back of a rise in crude oil prices during yesterday’s trading session. The West Texas Intermediate rallied 2.42% on Tuesday, closing the session above USD 84 per barrel and from touching distance from multi-year highs. Additionally, higher U.S. Producer Price index reading reported a significant increase driven by higher energy costs. The PPI reports showed how transportation bottlenecks, material shortages, and increasing labor costs, sent prices surging across the country. 


The Mexican Peso erased yesterday’s gains, retracing 0.15% against the dollar amid U.S treasury yields and above-estimations October inflation readings. The U.S. Treasury yields keep the dollar missing traction as the 10-year Yields fail to rise above 1.5%. Moreover, the latest Mexican inflation report showed that prices soared 6.24% annualized, beating estimates at 6.19% and above its previous release of 6%. The inflation gauge is now the highest since December 2017, and further inflationary pressures urge Mexican policymakers to raise its benchmark rate. Market participants estimate that policymakers will hike between 25 - 50 bps its benchmark interest rate at tomorrow's monetary policy meeting. 


The Chinese Renminbi marginally continues to advance against the greenback, edging closer to the highest since October. China’s inflation risks keep growing as producers pass on increasing costs to consumers, bringing into question whether the People’s Bank of China has the scope to ease monetary policy to support a limping economy. The Producer Price index rose 13.5% on an annualized basis beating estimates at 12.3%, while the Consumer Price index rose 1.5%, the fastest since September 2020 and well above 1.4% previously anticipated. 


The Brazilian real extends gains against the dollar, edging 1.08% higher during yesterday’s trading session. This result is possibly due to the market's confidence that the Chamber of Deputies would approve the PEC dos Precatório, despite the order to suspend the so-called ¨secret” budget from the Brazilian Supreme Court.  In fact, the Chamber concluded the approval of the PEC dos Precatórios in the second round, and the bill went to the Senate. The Real is set to face another lower volatility session as global markets remain range-bound ahead of key inflation readings from the country, as well as from the U.S. later today. 


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