Daily Market Pulse

Dollar awaits hints of tapering

5 minute read


The US Dollar remained unchanged against its major peers following a quiet trading session without relevant data to catalyze a meaningful move. The general note on the greenback remains bearish after higher than expected inflation figures failed to ignite the demand for dollars any further. The Fed sticks to its guns feeding on the narrative that until substantial further progress in inflation and employment is made, policymakers will continue to support the economy while optimism rises. Later today, the Bureau of Labor Statistics will release Producer Price Index figures for the month of May which are expected at 6.3% year over year as well as Retail Sales expected at -0.8% month over month. Despite the data flow, market participants remain off risk as we expect higher levels of volatility following tomorrow's Federal Open Market Committee. 


The EUR recovered 0.45% against the greenback amid better than expected Eurozone Industrial Production and U.S. treasury yields lingering low failing to incentivize any USD appreciation. Optimism continues to build in Europe as data keeps flowing positively, Industrial Production reading showed 39.2% yearly growth Vs. 37.4% anticipated, but policymakers remain dovish echoing that it is too early to discuss tapering the Pandemic Emergency Purchase Programme (PEPP). Later today, we expect further statements from European Central Bank officials Lane and Panetta which we expect to continue the dovish narrative surrounding its monetary policy.  


The British pound edged 0.11% higher against the American dollar ahead of tomorrow's Feds statement. Uncertainty around the U.K reopening on the 21st of June is finally over, as Government officials announced a four week delay given the recent surge in coronavirus cases. Andrew Bailey, the Governor of the Bank of England will keep an eye open for the Job reports, as these would set the pace for a hawkish monetary policy stance. Today, the U.K. labor market report should provide a better view for policymakers and market participants to confirm whether previously released ILO unemployment readings were right to show a significant pick up in the U.K.


The Japanese Yen fell 0.44% against the dollar recording losses for two consecutive sessions. The poor performance of the Yen comes on the back of a worsening outlook for the domestic economy due to slow vaccination rates that have only just started to improve. Industrial production showed better than expected readings at 15.8% V.s 15.4% anticipated which shows signs of recovery in the Japanese economy. Ahead of the Bank of Japan (BoJ) meeting later this week, market participants remain confident that policymakers will leave monetary policy unchanged and Governor Kudora is looking to extend the September deadline of its Pandemic relief program. The most likely outcome is that Governor Kudora will extend the program by six months but there is a big chance that the rollout might be delayed until mid-July.


The Canadian Dollar remained in a tight range against the USD and continues to test the upper boundary of the horizontal channel failing to consolidate beyond current levels. The Loonie continues to be supported by a bolstered West Texas Intermediate (WTI) crude oil which yesterday registered prices above 71 U.S. Dollar per barrel. Canadian data showed that Manufacturing Sales in April contracted 2.1%, worse than the anticipated 1% but solid oil prices limit the downside on the Loonie. We expect the Housing Starts reading later today but investors will follow inflation figures closely as they are expected to be released tomorrow with headline inflation at 3.5% year over year. 


The Mexican Peso continued to retrace, recording a 0.55% loss during yesterday’s trading session. The Industrial Production readings show that output in the country has increased 35.7% year over year in April, in comparison to last year's first lockdown and outburst of the COVID-19 virus. The report indicates that manufacturing industries production picked up 50.2% on a yearly basis while construction and mining 44.6% and 5.6% respectively. However, the encouraging figures failed to register any gains due to a contraction of industrial production on a monthly basis.    


The Chinese market remained closed yesterday due to the Dragon Boat Festival, leaving FX rates unchanged throughout the day. However, the market remained calm during today’s Asian trading hours as investors stayed cautious ahead of the Fed monetary policy statement and  Chinese Retail Sales tomorrow. On another note, the G7 summit hosted in the United Kingdom seems to have sparked renewed tensions among world leaders as China has accused the G7 of “political manipulation”. The joint statement from the world leaders called on China to respect human rights over the Uyghurs and other Muslim minorities, as well as opening an investigation to determine the origins of COVID-19. The Chinese embassy in London accused the G7 of “baseless accusations” and the spokesman said to “stop slandering China, stop interfering in China’s internal affairs and stop harming China’s interests”.


The Brazilian Real recovered 0.98% against the buck during yesterday's trading session, as the economy remains on a positive trend. Although a new interest rate hike may have already been priced in, inflation may continue to pressure the Selic rate and contribute towards the strengthening of the BRL. Meanwhile,  the National Council of Coffee exporters (Cecafe) reported that coffee exports fell 20.3% in real terms compared to May 2020 due to sustained logistical problems and the challenges posed by the process of issuing new certificates of origin as required by the International Coffee Organization (ICO). However, the council emphasized that despite the abrupt correction in volume, the overall outlook for the sector remains positive with promising harvest for the remainder of the year. 


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