Daily Market Pulse

Dollar advances to fresh 20-year high

USD

At the start of the week, safe-haven flows dominate the markets, and the U.S. dollar strengthens against its rivals in the early European session after posting minor daily losses on Friday (0.02%). Analysts cited elevated global inflation, Europe's energy crisis, and China's Covid-related uncertainties as factors driving dollar inflows. Furthermore, data released on Friday showed that U.S. hiring remained robust in June, supporting the Federal Reserve's aggressive stance against inflation. Investors are also anticipating U.S. inflation data on Wednesday, as another strong reading would likely cement expectations for the Fed to continue aggressively tightening. U.S. stock index futures were down between 0.8 and 1.1%, reflecting the cautious mood.

  • Monday 07/11/2022 - Fed William Speech

EUR

On Monday morning, the Euro began to fall. Despite a 0.25% gain on Friday, the pair lost more than 200 pips last week. Concerns that Europe's region will enter a deep recession, putting the European Central Bank between a rock and a hard place as it tries to curb inflation while cushioning a slowing economy, and keeping the common currency under pressure. Markets widely expect ECB to raise key interest rates by 25 basis points later this month. Aside from that, the key pipeline Nord Stream 1 began annual maintenance on Monday, July 11th, and flows are expected to stop for 10 days, raising concerns that gas supply will not return to pre-works levels. Amid the cautious market mood, European stocks are pointing lower.

  • Tuesday 07/12/2022 - Ecofin meeting | Zew Survey (Jul) 
  • Wednesday 0713/2022  -  Industrial Production (May)

GBP

The British pound appears to be edging lower after a modest gain (0.08%) on Friday. As a result, the pound has been hovering near its lowest level since March 2020, as political turmoil in the United Kingdom exacerbates uncertainty about the country's economic outlook. After several cabinet members resigned, Prime Minister Boris Johnson resigned, putting the UK on track to have its fourth leader in six years. Nonetheless, there is optimism that the new government will cut taxes quickly, increase spending to boost growth and improve relations with the EU. In other news, Foreign Secretary Liz Truss entered the race to replace Boris Johnson as UK Prime Minister today, becoming the latest cabinet minister to make her move in an already fractious contest. Truss made tax cuts a centerpiece of her campaign.

  • Monday 07/11/2022 - BOE Bailey’s Speech
  • Wednesday 0713/2022  -  GDP (May) | Manufacturing Production (May)

JPY

The Japanese yen fell to a new 24-year low after the ruling Liberal Democratic Party and its coalition partner Komeito increased their majority in the upper house election on Sunday, signaling no change in the country's loose monetary policies. The election took place just two days after the assassination of former Prime Minister Shinzo Abe, who was widely regarded as a key figure in the ruling party. The yen has also been weighed down by the Bank of Japan's pledge to keep interest rates low in order to support the economy, even as other major economies race ahead with aggressive rate hikes to combat surging inflation. BOJ Governor Haruhiko Kuroda recently stated that the central bank "will not hesitate to take additional monetary easing measures as necessary."

  • Monday 07/11/2022 - Producer Price Index (Jun) 

CAD

After finishing 0.15% higher the previous session, the Canadian dollar lost steam this morning. Following stronger-than-expected job data, investors assessed stronger market expectations for the Federal Reserve to continue its aggressive tightening path for a longer period of time. In Canada, the central bank is expected to continue raising borrowing costs significantly during its monetary policy meeting on Wednesday, after the unemployment rate fell to a new record-low of 4.9% in June, while the earnings growth rate accelerated to 5.6%, despite signs of cooling in terms of job additions. The index gained 0.9% last week, following a 1.1% drop the previous week.

  • No Major events/data release this week 

MXN

Risk-averse market sentiment is undermining the Mexican peso as the week begins, despite the fact that it closed the previous session 0.31% higher. Domestically, Moody's Investors Service downgraded Mexico's sovereign debt rating, citing economic and fiscal trends that are expected to erode the country's overall credit profile. Its rating was downgraded to Baa2, putting it two steps above junk and on par with Uruguay and the Philippines. Moody upgraded Mexico's outlook from negative to stable. According to a statement issued by the Finance Ministry in response to the downgrade, “Mexico's debt maintains a robust position in international markets and has sufficient financial buffers to face global risks”.

  • Tuesday 07/12/2022 -  Industrial Output (May)

CNY

The Chinese yuan closed flat in the previous session against the greenback. In the latest news, data released over the weekend showed that Chinese consumer and producer prices rose slightly faster than expected in June, casting doubt on the prospect of additional monetary easing. Having said that, China's annual inflation rate rose to 2.5% in June 2022 from 2.1% the previous month, exceeding market expectations of 2.4%. This was the highest print since July 2020, with food prices rising the most in 21 months as consumption increased further as the Covid situation improved. In other news, the Shanghai Composite fell 1.27%, the lowest level in over two weeks, as rising virus cases across China and the discovery of a new Omicron subvariant in Shanghai raised concerns about the possibility of wider lockdowns.

  • Wednesday 0713/2022  -  Trade Balance (Jun) | FDI (Jun)

BRL

The Brazilian currency had a strong correction this past Friday as a result of the latest market data from the U.S. economic docket, which came in strong, minimizing the fears of an impending recession. Other than that, the postponement of the vote on the proposal that expands benefits due to the low quorum also brought momentary relief to the Real. Coming up, there are no relevant data releases this week. The main factor that will dictate the real’s currency's tone is the PEC. Elsewhere, consumer prices rose 0.67% month on month in June, slightly below the 0.71% consensus, however, the reading continued highlighting the resilience of inflation. The continuous rise in prices for food - unaffected by recent tax cuts and despite the decline in international prices - will be a challenge to the economic plan pre-election campaign of President Jair Bolsonaro.

  • Monday 07/11/2022  - Focus Bulletin
  • Tuesday 07/12/2022  - Service Sector Growth (May)
  • Wednesday 07/13/2022 - Retail Sales (May) / Consumer Confidence Report Reuters/Ipsos (Jul)
  • Thursday07/14/2022  - IBC-Br
  • Friday 07/15/2022  - Budget Balance (May)
 

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