Daily Market Pulse

G10 and emerging currencies are finding it difficult to stand in the way of a stronger dollar

5 minute read


The U.S. dollar made small gains at the start of the week. The greenback rose 0.16% against a basket of major currencies, with investors cautious ahead of major central bank meetings, headlined by a two-day Federal Reserve on Wednesday evening. The USD found support from the headline General Business Conditions Index of the NY Fed's Empire State Manufacturing Survey, which rose to 17.4 in March from 12.5 in February. This reading came in better than analysts' estimate of 14.5 and suggested that firms remained optimistic, anticipating significant increases in employment. Looking ahead, February’s U.S. retail sales report highlights today’s calendar, alongside Import and Export prices and Industrial Production.


The Euro lost some ground (-0.2%) against the greenback on Monday, after Europe’s vaccine roll-out has been hampered by the suspension of Oxford-AstraZeneca shots in Germany, France, and other nations amid concerns about possible serious side effects. Despite vaccine worries, the European Union is set to propose a strategy to gradually lift lockdown restrictions. The proposal document is expected to be unveiled on Wednesday. On the economic data front, the latest German and Eurozone ZEW sentiment surveys are due this morning. It is expected some optimism around the numbers, which may help the EUR to hold the current levels.


The Pound printed some losses (0.13%) against the U.S. dollar at the beginning of this week. On the technical front, yesterday’s closing price landed slightly below the upside channel which has been running since last September. It is difficult to know if the Cable will break the current support level as it has solid fundamentals that support it. There is no economic data to be released till Thursday, therefore the GBP will trade on expectations ahead of Thursday’s Bank of England (BoE) policy meeting. The big question for investors is whether the BoE will push back against the recent rise in interest rate expectations in the minutes.


The Japanese Yen remains trapped into a bearish trend, with it still feeling difficult to stand in the way of a stronger U.S. dollar. The JPY dropped 0.16% and touched the weakest level since June last year ahead of the Bank of Japan policy meeting, along with the U.S. Fed meeting. In addition, the recent Machinery order numbers, which were released on Monday, did not help the JPY either. Japan’s core private-sector machinery orders fell 4.5% in January from the previous month, the first drop in four months, with declines seen in a wide range of sectors that have been recovering from the pandemic. Today, market players will wait for January’s industrial production figures.


Despite closing flat, the Canadian dollar is still hovering on the three-year high yesterday. The Loonie remains well supported by surging oil prices and recent upbeat economic data. Last Friday, official data showed that the labor market added more jobs than expected in February. Besides, Canadian home sales and prices continued to increase in February, rising 6.6% from January to set a new record amid strong demand across the country, data from the Canadian Real Estate Association showed on Monday. Today, in the absence of material economic data, market participants will keep an eye on the bond markets ahead of the U.S. Fed meeting and Canadian inflation numbers on Wednesday.


Yesterday, the Mexican peso was almost unchanged (+0.06%) against the U.S. dollar amid a quiet trading session, marked by a light volume due to the national holiday. In the year, the MXN dropped over 4%, due to President Andrés Manuel López Obrador’s populist moves and worsening of the pandemic. In the absence of economic data, the MXN will be driven by improving the U.S. economy and oil prices.


Chinese official data released a raft of positive economic data on Monday, but market participants are struggling to digest it and make conclusions from it. As a result, the Chinese yuan merely rose 0.12% against the greenback. In general, retail sales growth jumped to 33.8% year-over-year in February, from 4.6% in December. Industrial production growth leaped to 35.1% year-over-year in February, up from December's 7.3% rate. Fixed asset investment growth rose to 35.0% year-over-year, after full-year growth of 2.9% last year. Although the headlines are quite favorable, base effects must be considered and that performance looks like a temporary phenomenon.


The Brazilian Real started the week on the wrong foot, sliding more than 1% against the greenback. In the year, the BRL is one of the worst-performing among emerging market peers, down over 8%. The expectations of starting the tightening cycle this week in Brazil increased significantly yesterday, following better-than-expected economic growth in January, with IBC-Br Economic Activity coming at 1% (vs. 0.5% forecast). But the economy is far from overshooting, and downside risks remain, suggesting that the central bank will hike rates by a relatively modest 50bp in its policy meeting on Wednesday. Looking further ahead, higher interest rates, high inflation, and increased political risk will be the major drivers influencing the BRL’s price.


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