Daily Market Pulse

Dollar swings as CPI hits 5% and jobless claims show progress

5 minute read


The U.S. Dollar Index, which benchmarks the performance of the greenback against a basket of major currencies, closed -0.09% lower despite higher than expected U.S. inflation figures. The Index rallied 0.3% soon after the U.S. Bureau of Labor Statistics released the Consumer Price Index figures at 5% year over year Vs 4.7% expected. However, the market diluted the news shortly, erasing the sharp gains and edging lower by market close. The strong inflation figures are a sign that the U.S. economy is doing well as states progressively reopen in addition to a substantial pick up in commodities prices. Fed officials have insisted that current inflation levels are transitory and that inflationary pressures are expected to ease by the fall, leaving policies unchanged. Additionally, initial jobless claims were marginally higher than expected at 376k Vs 370k anticipated while the U.S House Committee approved a $574 billion infrastructure package to increase the total package to $2.3 trillion.


The EUR had a volatile session, retracing 0.28% against the dollar and rapidly recovering amid U.S. inflation data and the European Central Bank (ECB) monetary policy statement which lifted up the bloc’s forecast. The ECB left interest rates unchanged and flagged that the Pandemic Emergency Purchase Programme (PEPP) will pick up the pace until March 2022 to deploy the remaining EUR 700 billion out of the total package of 1.85 trillion. Christine Lagarde, President of the ECB said that core inflation is still lagging from the established target; however, the committee raised its forecast for the euro area economic growth to 4.6% for this year and 4.7% to 2022 arguing that beyond 2023 growth would stall around 2.1%. Market participants believe that the set of notes from the ECB paved the way for policymakers to make any adjustments to policy in September.


The British pound advanced 0.44% against the greenback amid positive news over Brexit and a broader dollar weakness. Brussels and London reached an agreement over fishing rights adding a positive note to the cable while Biden’s visit to Prime Minister Johnson turned out to be refreshing to the relationship. Biden agreed that both Britain and the EU had a responsibility to work together to find pragmatic solutions to allow trade between Northern Ireland, Britain and Ireland. COVID cases in the U.K. continue to increase, raising doubts about whether the U.K. will reopen on the 21st of June as British scientists warned the government that the Delta variant could trigger a third lockdown. 


The Japanese Yen advanced 0.24% against the American dollar as U.S. treasuries edged lower following the American inflation figures on Thursday and residual optimism from better than expected Japanese Gross Domestic Product (GDP) figures earlier in the week. The dollar struggled to gain some traction mainly due to the fallback of U.S. Treasury yields which have registered its lowest levels since early March. Market participants believe the Bank of Japan will continue to support the economy and are likely to leave interest rates and bonds purchase programs unchanged for the upcoming meetings. 


The Canadian Dollar registered a modest gain of 0.14% against the American Dollar. The pair continues to trade within its three-week horizontal channel although the USD advanced after inflation figures beat estimates, the positive note on global recovery made it difficult to gain some demand. The West Texas Intermediate (WTI) pushed higher, protecting the Loonie on the downside. Deputy Governor of the Bank of Canada, Timothy Lane said that the Canadian economy is well on track and that policymakers are expecting a consumer-led recovery as containment measures ease in Canada. The BoC official reiterated that if the recovery evolves in line with the BoC expectations then the economy won’t need as much stimulus, hinting a possible tapering in the upcoming meeting in July.   


The Mexican Peso continues to advance against the dollar registering 0.1% gains during yesterday's trading session. Mexico’s National Statistic Institute released the latest Consumer Price Index estimates registering 5.89% year over year with a monthly increase of 0.2%. The estimates are far from Banxico's 3% inflation target but domestic demand has slightly slowed since the April release at 6.08%. Moreover, President Andres Manuel Lopez Obrador announced that Finance Minister Arturo Herrera will be the next new Central Bank governor.


The Renminbi remained unchanged (0.04%) unaffected by expected U.S. inflation figures due yesterday. The Peoples Bank of China Deputy Governor Yi Gang said two-way fluctuation of the yuan should be the new normal, hinting that policymakers are likely to gradually continue to ease controls over the exchange rate but vowing intervention in order to keep rates reasonable and stable. Additionally, concerns over liquidity shortage are mounting among market participants as PBoC open market operations haven’t injected any liquidity since March and funding costs are rising as demand for cash grows. 


The BRL advanced 0.2% against the USD after the Consumer Price Index figures were released by Brazil’s National Statistics Institute, registering the highest monthly figures in 25 years. The recent inflationary pressure set CPI variation of 8.06% year over year from 6.76% recorded in April. The price behavior was consistent across different consumer categories but the cost of electricity led the headline figures. The latest release raises concern among market participants as Brazil’s Central bank (BCB) projected 5.44% inflation in their latest survey. The high levels of inflation come by the hand of a strong economic pickup but we expect the BCB could adjust monetary policy in order to control the rising inflationary pressures.


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