Daily Market Pulse

Biden’s infrastructure bill passes, inducing constructive optimism

5 minute read


The U.S. dollar index, a coefficient used to benchmark the performance of the greenback against a basket of currencies, advanced 0.07% following the passage of the USD 1 trillion infrastructure bill, which induced constructive optimism in the market. Covid jitters remain a cause of concern for investors amid flare-ups in the U.S. and APAC region. Additionally, U.S. Treasury Yields continue to edge higher, underpinning the greenback amid tapering expectations before the end of the year in light of job reports posted last Friday. The Chicago Fed President, Charles Evans, said that he expects substantial further progress later in the year on asset tapering, adding to the broader narrative of Fed speakers. However, all eyes are now on inflation, making market participants remain cautious ahead of the U.S. Consumer Price Index (CPI) data for July, which is due later today and is expected to post 5.3% annualized, 0.1% lower than results from June. 


The common currency remains on the backfoot amid higher U.S. yields and disappointing morale indicators in Europe. The German ZEW Survey for August failed to impress, showing that Economic Sentiment in the country has deteriorated, printing 40.4 vs 56.7 previously anticipated while Current Situation data showed 29.3 vs 30 expected. Moreover, the broader European Economic Sentiment followed the same trend, suggesting a sharp contraction from the 61.2 figure released back in July to 42.7 in August, missing expectations set at 72. The low key in European figures weighed on the EUR, which retraced 0.13% against the dollar during yesterday's trading session, recording its sixth consecutive day of posting losses. Technical analysis suggests that if the EUR breaks the current support level, we could expect it to extend losses to prices we haven't seen since November last year.  


The British Pound continues to extend losses amid renewed Brexit jitters and Covid woes surrounding death stats. The U.K. government is looking to extend the emergency powers for trucks heading into France, in an effort to use its Brexit rights, suggesting that further cross-channel disruptions are to be expected. Moreover, despite daily infection figures improving on a day-to-day basis, Covid led deaths have spiked to a 5-month high due to the aggressive nature of the Delta variant. Prime Minister Boris Johnson continues his campaign to vaccinate the U.K population, posting that 75% of adults are double jabbed and ordering further vaccines to boost up the inoculation capacity of the country, while authorities consider a third jab. 


The Japanese Yen fell 0.26% against the dollar amid a broader greenback strength after the U.S. Senate passed Joe Biden’s bazooka infrastructure bill and the U.S. treasury yields continue to edge higher. Tapering expectations continue to push treasury yields higher, posting 1.3610%, recording the highest yields since mid-July. However, the mood remains cautious as market participants remain worried about the fast-spreading Delta Variant and the impact on the economy, which could derail the global economic bounceback. 


The Loonie managed to outperform the dollar, rallying 0.45% during yesterday's trading session amid oil prices recovering. A modest uptick in oil underpinned the Loonie, with West Texas Intermediate (WTI) recovering 2.14%, underpinning a surge in the commodity-linked currency. However, oil prices remain in limbo amid China’s spike in Coronavirus cases, which compromises the prospects of recovery and has induced fears of an economic stall, undermining the demand for oil. For now, market participants will focus on the upcoming U.S. Consumer Price Index figures for July, which will influence market expectations about the next move from policymakers. 


The Mexican Peso closed 0.23% lower against the dollar following a broader dollar demand, which was driven by higher treasury yields and Joe Biden’s bipartisan infrastructure bill. Additionally, the National Statistics Institute of Mexico released Consumer Price Index figures showing that inflation stood at 0.59% in July, aggregating to an annual price change of 5.81% vs 5.77% expected. Despite higher than expected figures, authorities signaled that inflation has slowed down from its previous release which posted 5.88% in June. Figures coming in ahead of Thursday's Banxico monetary policy meeting are expected to announce if policymakers will continue adjusting rates or allow current conditions to remain unchanged amid inflation results.  


The Chinese Yuan remained virtually unchanged, trading in a tight range amid lingering covid concerns. China's daily new Covid-19 cases reached a 7-month high on Tuesday and it represents a latent risk to the economic recovery which keeps global morale low and commodities prices on the edge. Moreover, as the Japanese Olympic games begin to get closer to its end, Beijing prepares for the winter Olympics which will be hosted in China. The Peoples Bank of China is looking to issue its digital Yuan over the event as part of its pilot program of deploying the digital Yuan. 


The Brazilian Real rallied 0.98% against the greenback following a hawkish tone from BCB minutes. Minutes from the last rate decision reinforced the bank's hawkish tone, with officials making it clear that any deterioration of the inflation scenario would call for rate hikes to put the Selic above its neutral level. Market participants eye upcoming inflation figures in order to confirm hawkish approach from policymakers. The Consumer Price Index is forecast to accelerate to 8.98% on a yearly basis, higher than previous figures released at 8.38%. 


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