Daily Market Pulse

Dollar retraces amid CPI figures and optimism around Biden’s bill

6 minute read


The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies, stepped back 0.77% after three consecutive sessions of posting gains, amid lingering U.S. NFP figures and optimism around the passage of the massive infrastructure bill in the country. The retracement was triggered by inflation figures released yesterday, which were expected to pull back, while Consumer Price Index posted 5.4% annualized vs 5.3% previously anticipated, which sustained the 13 year high posted in June. Additionally, Equity markets soared following the passage of Biden’s USD 1 trillion infrastructure bill with S&P and Dow Jones recording new all-time highs amid market optimism. However, treasury yields pulled back amid easing tapering expectations which kept the dollar on the backfoot. Additionally, Covid woes continue to be a latent risk for global morale, while widening regulatory curbs from China and escalating tensions over the impact of the Delta variant keep the market mood subdued in the APAC region with Asian shares edging lower. Coming up, U.S. Producer Price Index will bring fresh input, which could trigger renewed impetus in the market.   


The EUR rallied 0.19% against the dollar amid a sour market mood which keeps market participants shivering. Morale indicators in the EU failed to impress throughout the course of the week, which has kept the common currency on the back foot. However, the EUR remains close to its five-month lows, and the rebound seems to be capped on the upside amid poor market sentiment and with the focus now shifting to the U.S. Producer Price Index and Jobless claim to renew market impetus. On the European side, Industrial Production is due later today, expected to release 10.4% annualized coming from a previous figure in May of 20.5% annualized. 


The Sterling Pound had a volatile session, extending losses during the early hours of Wednesday, although it flipped its momentum and closed 0.20% higher against the dollar. The price behaviour suggests uncertainty amongst market participants, amid looming Brexit concerns, Covid woes, and a downbeat market mood that weighs on the British Pound. However, earlier in today’s session, Gross Domestic Product posted better than expected growth figures for Q2, releasing 22.2% annualized vs 22.1% previously anticipated amid easing restrictions in the country, although monthly industrial and manufacturing figures failed to impress in June amid a spike in Covid cases which has now eased significantly in terms of daily infections. The mixed results had little effect over the early hours of today’s trading session. Additionally, U.K Health Minister Sajid Javid confirmed that fully vaccinated British people above 18 years old need not self-isolate. However, Brexit woes soured up the market mood as the EU is planning a final ultimatum to the U.K. as the blocs patience is running out after the Brexit Minister David Frost expressed its intentions to renegotiate the Northern Ireland Protocol. 


The Japanese Yen recovered 0.10%, following the slide in the U.S. treasury yields as tapering expectations ease down and inflation figures triggered a dollar retracement. However, broader tensions and Covid woes in the APAC region keep market participants cautious, which benefits the safe-haven JPY, capping the downside risk. Moreover, positive data in Japan underpinned the retracement, with Producer Price Index figures stepping at 5.6% annualized, well above 5% of the market consensus. The monthly figures also pushed on the upside for July releasing 1.1% vs 0.5% previously anticipated. 


The Loonie extended gains against the dollar, edging 0.15% higher amid volatile oil prices which managed to advance 1.08% during yesterday’s trading session. The West Texas Intermediate (WTI) regained momentum following the passage of the U.S. infrastructure bill, which should keep oil demand active, although China’s economic slowdown woes still linger, capping the broader risk-on sentiment and further performance of crude oil. However, markets remain cautious today ahead of the U.S. Produce Price Index and Jobless Claims figures, which may bring renewed impetus as there are no data releases from Canada this week.  


The Mexican Peso rallied 0.77% against the greenback during yesterday's trading session amid a broader dollar sell-off triggered by U.S. inflation figures and sliding treasury yields. However, Mexican industrial output failed to impress, releasing 13.5% annualized while market consensus was set at 15.7%. Monthly figures for June showed that the Industrial Output contracted 0.5%, while market participants expected 0.2% amid Covid restrictions which kept the economy in a back and forth. Moreover, international tourism continues to recover as the latest figures from the National Statistics Institute showed that the country received 3.12 million international tourists in June 2021, a 211% increase from the 1 million tourist arrivals in 2020. Coming up, Mexico’s Central Bank will hold its monetary policy meeting and announce interest rate decisions. 


The Chinese Yuan benefitted from the broader USD weakness, advancing 0.03% despite Chinese authorities widening their regulatory crackdown. Asian equity markets remain subdued amid widening regulatory curbs from China and escalating tensions over the impact of the Delta variant on the prospect of economic recovery. Authorities announced a five-year plan calling for stronger business regulation as Beijing pursues a crackdown. Moreover, government-related economists are calling for an interest rate cut from the People’s Bank of China, arguing that a loosened monetary policy will not trigger huge risks, nor a jump in property prices. 


The Brazilian Real fell 0.46% amid political disturbances due to an attempt from Bolsonaro´s administration to make an electoral reform, as well as inflationary pressures accelerating in the country. The Brazilian Chamber of deputies voted on a reform to establish an electronic ballot reform that would change the current electronic voting system in elections to one with a paper trail. The voting fell short of the three-fifths majority needed to be approved to achieve the reform. Nevertheless, July inflation reports showed that prices edged 0.96% higher in July compared with June. The records suggest that is the highest monthly inflation rate since 2022 which brings annual inflation to 8.99%. 


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