Daily Market Pulse

The next inflation reading will be more far more interesting

5 minute read


The U.S. Dollar Index (DXY), which measures the value of the greenback relative to a basket of six currencies, fell 0.37% for the second trading session in a row, on Tuesday. Although the CPI inflation rose 2.6% in March, the reaction in markets was contained and suggested the rise was not as much as some had expected, given that U.S. Treasury yields generally fell, pushing the USD down. Nonetheless, Tuesday also saw the publication of the monthly survey of small business owners, which revealed they were planning higher prices, the highest since immediately before the financial crisis, suggesting significant inflationary pressure. On that note, the next CPI release will be far more interesting. Today, Fed Chair Jerome Powell is scheduled to speak at the Economic Club of Washington.


The EUR/USD recovery continued on Tuesday after the single currency inched up 0.32% as the USD upside lost steam. The technical frame also helped the pair, as major resistances were broken, making the EUR more accommodating for an upside move. However, the recent investor sentiment in Germany showed that the fundamentals are not a bed of roses, after the ZEW survey fell (unexpectedly) to 70.7 points in April, its first drop since November 2020. The reading suggests that private consumption might be depressed as Europe’s largest economy prepares to extend its lockdown measures. Elsewhere, Johnson & Johnson decided to delay its Covid-19 vaccine launch in Europe after cases of clotting in the U.S., which further complicates the European inoculation campaign. Today, ECB President Christine Lagarde is set to speak in a public event.


The Cable edged 0.07% up on Tuesday after data showed the U.K.’s economy grew by 0.4% month-to-month in February. However, February’s GDP report also showed that economic activity remained greatly depressed by lockdown rules, with GDP still 8.2% below its January 2020 level. At the same time, the British traders’ reaction to higher U.S. inflation was muted, suggesting that U.S. inflation and growth narratives are in large part priced in. Elsewhere, the headlines of the resignation of Bank of England Chief Economist Andy Haldane should not affect the pound's outlook for the coming months as no imminent Bank of England tightening was on the table. For today, labor productivity numbers in Q4 are due, although it may have no impact on the GBP.


The Japanese Yen settled 0.3% higher against the U.S. dollar after the U.S. Government bond yields fell on Tuesday. Trading tick-for-tick with U.S. yields, the JPY has rebounded from its one-year weakest level while yields have lost steam as the market is, at the moment, no longer so concerned with the risk of inflation. Also, recent Japan’s domestic data lent some support to the currency, with investors and businesses seeming more confident about the outlook for economic activity in the short term. Looking ahead, Bank of Japan Governor Kuroda is set to give a public speech later today.


The Loonie printed gains of 0.24% against the USD on Tuesday after oil prices settled higher on strong Chinese import data. Crude oil imports into China jumped 21% in March from a year earlier as refiners ramped up operations. The CAD also found support from a weaker USD abroad. Although the U.S. inflation made strong gains in March, the rise is not expected to alter the Federal Reserve’s commitment to keeping interest rates at the lowest levels for years to come. In the absence of material domestic data, Canadian traders will wait for fresh remarks from Fed Jerome Powel and ECB President Largarde – both are expected to speak today.


The MXN bullish channel remains solid, with the currency hitting a two-month high after closing up 0.28% against the greenback on Tuesday. The lack of local data favored the MXN which took advantage of the global weakness of the U.S. dollar after economic data from the United States and China supported a risk-on sentiment. However, investment bank JPMorgan also yesterday recommended selling emerging market currencies, an utter reversal from what was estimated at the beginning of the year. On that note, recently Goldman Sachs also recommended its clients stop selling the USD against commodity-linked currencies due to surging Treasury yields, as well as Covid-19 concerns and increased geopolitical tensions around the world.


The Chinese yuan made little against the greenback on Tuesday despite Chinese data showing that exports grew at a robust pace in March and import growth surged to the highest in four years. Exports climbed 30.6% in USD terms in March from a year earlier and imports jumped 38.1%, beating expectations. The outperformance in imports reflects strong domestic activity and rising commodity prices, further evidence of China’s solid recovery from last year’s pandemic. Looking ahead, Foreign Direct Investments figures will be released today, but investors are waiting for Q1 GDP, Industrial Productions, and Retail Sales due tomorrow, which will probably show the economy expanded in the first quarter from a year ago.


The Brazilian Real managed to recover some ground against the U.S. dollar on Tuesday, with investors closely watching the domestic political developments as a looming investigation (CPI) of how President Bolsonaro’s administration has handled the outbreak puts the federal government under pressure. From international headlines, U.S. inflation seemed to not rise by as much as market analysts expected, given the Treasury's 10-year yield dropped 5bp, making the USD lose some steam abroad. Looking ahead, the IBC-Br economic activity is widely expected later today as it is considered a "preview" of the Gross Domestic Product.


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