Daily Market Pulse

Dollar on focus as market mood is uncertain

5 minute read


The U.S. dollar index, a common tool used to value the greenback against a basket of currencies, advanced 0.14% during yesterday’s trading session amid a broader risk-off mood induced by ongoing concerns over the global spread of the Delta variant, and the widening regulatory crackdown in China. Despite Covid woes, equity markets in the U.S. continue to reach new all-time highs amid lingering effects of the USD 1 trillion infrastructure bill approved by the Senate earlier this weekend while market participants shrugged off the Fed’s tapering expectations. On the data front, Producer Price Index continues to punch above expectations, releasing 7.8% annualized vs 7.3% previously anticipated, while Jobless claims also beat market consensus, posting 2.866M vs 2.88M expected. The macroeconomic data continues to support the broader narrative around tapering, although sentiment remains subdued, which might reduce growth expectations in the eyes of market participants and policymakers. In order to solve this puzzle, the Michigan Consumer Sentiment Index later today is expected to sustain 81.2 from its previous release in July, which will provide a good indicator of morale in the country. 


The EUR stepped back 0.06% against the dollar amid ongoing Covid jitters and disappointing European data, which kept the common currency subdued during yesterday’s trading session. The European Industrial Production failed to impress market participants, posting 9.7% annualized missing expectations set at 10.4% and showing a significant slowdown from the May figures posted at 20.6%. Christine Lagarde, President of the European Central Bank, flagged that policymakers remain concerned about the current wave of the Coronavirus pandemic due to the Delta variant and its impact on economic recovery. The comments from Lagarde lowered morale, echoing the poor sentiment reading in ZEW surveys amid the death toll of the current wave of the virus. Earlier today during the trading session, German Wholesale prices missed expectations, releasing 11.3% year over year vs 11.6 previously anticipated, although this was higher than its May postings. Coming up, trade balance figures will provide further insights alongside CFTC futures positionings.   


The British Pound closed 0.41% lower during yesterday’s trading session and remains subdued, amid persisting Brexit concerns and fears of a spike in Covid case from the deadly Delta variant. The U.K. media noted that U.K. scientists warn of a jump in Covid case as the country turns its attention to the end of the restrictions and holidays in the sun, renewing souring notes in the market mood. Brexit wise, the deadline for EU citizens to apply to stay in the U.K. has come, which could trigger fresh Brexit tensions between London and Brussels, in addition to the building backlash on the renegotiation of the Northern Ireland protocol. 


The Japanese Yen stepped 0.04% lower against the dollar amid lingering covid woes weighing on the delayed vaccination rollout program in Japan as well as on the pace of the economic recovery. Despite its strong impact on the APAC region, the Yen has failed to benefit from its safe having appeal, given its slower vaccination programme, although economists believe that the downside exposure should remain limited. Moreover, strong data in the U.S. and a broader risk-off sentiment bolstered demand for the dollar. 


The Canadian dollar remained on the backfoot during yesterday’s trading session following the broader risk aversion in global markets due to the strain of the Coronavirus. The lack of Canadian input keeps the focus of market participants on any developments on the dollar valuations and crude oil price fluctuations. The ongoing Covid jitters sustain the West Texas Intermediate (WTI) below the 70 USD mark, amid China’s growing concern of an economic slowdown with regards to the latest variant of the virus.


The Mexican Peso retraced 0.16% against the dollar despite Banxico increasing interest Rates during its latest monetary policy meeting. The general eased-up the mood in global markets and solid figures in the U.S. add to the demand for the dollar. Banxico increased the reference rate by 25 bps to 4.5%, in line with expectations removing any surprise effect over the exchange rate. Moreover, Mexico’s National Statistics Institute released its monthly industrial activity index showing that industrial production rose 10.5% during the first six months of 2021 showing signs of a slowdown in the monthly figures of June.


The Chinese Yuan slid 0.04% lower against the greenback amid Coronavirus pressures diminishing the market mood and growth prospects. The People’s Bank of China released its “2Q Monetary Policy Report” signaling that the central bank may cut interest rates. Economists believe that the PBoC will target the required reserve ratio once again but it will avoid adjusting policy rates to avoid stoking asset price bubbles. A cut in the Reserves Ratios will provide more liquidity into the financial sector and assist credit expansion.  


The Brazilian Real extended losses during yesterday’s trading session as the government is trying to pass a controversial tax reform. The Bolsonaro government is looking to cut taxes for corporations, initiating turmoil in different states and cities with local governments arguing the fiscal deficit will widen as they will lose too much revenue. The bill includes a potential levy on corporate dividends, which pushed the market lower following the announcement.  


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