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Bullish mood and ECB’s fears

USD

Despite bond yields inching higher, the dollar index against six major currencies dropped 0.44% on Thursday, retreating from a more-than-four-month high reached on Monday. Still, the S&P 500 ended the day at a new historical high after the bullish mood came on the back of the news that President Joe Biden signed the $1.9 trillion Covid-19 relief package. The fresh package sends direct payments of up to $1,400, extends a $300 per week unemployment insurance supplement, expands the child tax credit, and puts funds into vaccine distribution. Looking ahead, February’s Producer Price Inflation and University of Michigan Consumer Sentiment for March are due.

EUR

The euro traded 0.5% higher on Thursday, holding firm after the European Central Bank, as expected, ratified it would accelerate its emergency bond purchases over the next quarter. This came after a recent rise in bond yields that threatened to undermine its monetary policy, hence, the European economic recovery. Regarding the ECB’s new forecast, it now sees inflation at 1.5% this year, 1.2% in 2022, and 1.4% in 2023, still a long way from reaching the official target (at 2%). On the economic calendar, Germany’s Consumer Price Inflation for February, January’s Retail Sales and February’s Consumer Price Inflation from Spain, and Eurozone Industrial Production for January, all are due later today.

GBP

Yesterday, the Cable notched its fourth straight gain (+0.44%) and it was the pound’s best run since the end of February after the U.K. decided to postpone border checks on goods coming from the European Union until next year has delighted the country’s importers. This has relieved fears that import checks could impede the recovery of the nation’s economy. Today’s calendar will provide the market with fresh economic data from the U.K., giving a clearer overall direction for the Pound. This morning, January’s GDP came at -2.9% as government restrictions reduced economic activity, however, the reading was less dreadful than expected (-4.7%). Wrapping the day up, the market will get the full range of production numbers later today.

JPY

The Japanese Yen gave back its recent gains against the greenback on Thursday. The JPY dropped 0.11% after the recent Ministry of Finance survey showed that business conditions in Japan deteriorated drastically in Q1. The Large manufacturing business survey index (BSI) tumbled from 21.6 to 1.6. Large non-manufacturing BSI turned negative from 6.7 to -7.4. Large all industries BSI also turned negative from 11.6 to -4.5. Still, according to the survey, domestic economic conditions also deteriorated substantially in Q1. Earlier today, Bank of Japan Deputy Governor Masayoshi Amamiya said the Central Bank will review the monetary policy at next week’s policy meeting and one of the key goals of the review would be to mitigate the pain that negative rates inflict on financial institutions' profits, and dispel perceptions in the market that further rate cuts were off the table.

CAD

The Loonie rose 0.7%, jumping to a two-week high against its U.S. rival on Thursday, as calmer U.S. bond markets bolstered stock markets and Bank of Canada (BoC) Deputy Governor Lawrence Schembri said spending of excess savings could lead to a stronger economic recovery. According to the BoC official, household savings have risen across the country to the tune of $180 billion in the past year, or roughly $5,800 per Canadian. If the pandemic is brought under control and households become more confident, it might see Canadians spend some of these savings. Looking ahead, last month’s Canadian labor market stats are due. It is expected that employment will have bounced higher off of the second-wave lows during February.

MXN

Once more, the Mexican peso printed solid gains (+1.26%) against the greenback on the back of surging oil prices. Yesterday, West Texas Intermediate futures added 2.45% to reach $66.02 a barrel after a fall in U.S. gasoline inventories offered a signal of recovering consumption. On the economic front, Mexico Industrial Production data is due to be released later today. According to the market’s forecasts, industrial production is likely to have risen 0.4% month-to-month, but the unadjusted year-over-year rate probably fell to -5.0% in January, from -2.1% in December.

CNY

Yesterday, the Chinese yuan extended its gains over the U.S. dollar ahead of a U.S. central bank policy meeting and a bilateral meeting between senior U.S. and Chinese officials in Alaska next week. This meeting will mark the first high-level in-person contact between Beijing and Washington since U.S. President Joe Biden took office. Any comments from this meeting will provide evidence of what to expect from Sino-U.S relations and, certainly, sufficient grounds to guide the markets. Meanwhile, in a sign that the Biden administration will move forward on technology export controls, the U.S. tightened restrictions on selling 5G-related goods to the Chinese giant Huawei. 

BRL

The Brazilian Real jumped as much as 2.4% against the greenback on Thursday after the Lower House approved the Emergency PEC constitutional amendment that allows new stipends to households. This new emergency Covid-19 package – worth BRL 44 billion - was welcomed by market participants, as it has included an additional set of mechanisms on the budget to bring the fiscal accounts under control if needed. Data released yesterday showed that Brazil’s benchmark inflation index, the IPCA, rose to 5.2% - just below the target ceiling, 5.25% - from 4.6% in January. Rising oil prices are mostly to blame. Under these circumstances, Brazil’s Central Bank likely will increase rates next week, by 50bp to 2.50%, despite the worsening economic outlook. Looking ahead, the Covid-19 crisis continues, combined with a slow vaccination rollout.

Quick Insights

USD: The S&P 500 ended the day at a new historical high

USD: The S&P 500 ended the day at a new historical high

EUR: The recent rise in bond yields threaten to undermine ECB’s monetary policy

EUR: The recent rise in bond yields threaten to undermine ECB’s monetary policy

GBP: Import checks could impede the recovery of the U.K.’s economy

GBP: Import checks could impede the recovery of the U.K.’s economy

JPY: Business conditions in Japan deteriorated drastically in Q1

JPY: Business conditions in Japan deteriorated drastically in Q1

CAD: Excess savings could lead to a stronger economic recovery

CAD: Excess savings could lead to a stronger economic recovery

MXN: A fall in U.S. gasoline inventories offers a signal of recovering consumption

MXN: A fall in U.S. gasoline inventories offers a signal of recovering consumption

CNY: Biden administration will move forward on technology export controls

CNY: Biden administration will move forward on technology export controls

BRL: Brazil’s benchmark inflation index came just below the target ceiling

BRL: Brazil’s benchmark inflation index came just below the target ceiling

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