Daily Market Pulse

The greenback holds its ground amid the cautious market mood


The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies, recovered previous losses. The index holds within a tight range as the market mood is mixed and uncertain as hopes of cooling U.S. inflation are offset by searing energy costs which threaten to undermine growth. Moreover, booster jabs are being debated as the efficiency of the vaccine fades with time and authorities are looking to control the spread of future outbursts. Weaker inflation figures in the U.S. failed to depress the dollar, especially after trade data showed that import prices surprisingly dropped in August. The dollar found pressure due to the data, although investors remain cautious amid broader uncertainty, holding on to the greenback’s demand. Energy prices soared, with West Texas Intermediate reaching USD 73 per barrel after U.S. inventories reported a substantial drawdown amid storm season. Moreover, a shortage in natural gas keeps European investors nervous ahead of the winter, while China’s woes about rising commodity prices have prompted the government to release several metals from its reserves. Coming up, Retail Sales and Jobless claims will take the stage, alongside Philadelphia Fed Manufacturing Survey which will be a useful input to measure morale and market activity. 


The EUR remains subdued against the dollar, reversing recent gains amid mixed market sentiment which keeps the greenback on demand. Additionally, the calm approach from the European Central Bank towards inflation weighed on the EUR, capping upside potential for investors. Among the ECB policymakers, Executive Board member Isabel Schnabel released her hawkish stance by saying that Market participants may be overestimating risks to the global growth outlook. On the other hand, Chief economist from the ECB, Philip Lane, said that he is happy that accommodative monetary policy is helping to build core inflation in the Eurozone.  Coming up, market participants look forward to Christine Lagarde’s intervention later today, which will confirm the cautious optimism conveyed recently by her colleagues. 


The Sterling Pound sustains levels against the greenback, although renewed pressures coming from the mixed market sentiment keep cable offered. Market participants eye U.S. economic release, expecting some meaningful trading impetus over the pair. The British Pound failed to capitalize further gains against the dollar after the better than expected U.K. inflation reports, which outperformed U.S. figures. However, a softer risk tone sponsored by fear of stock overvaluation induced caution among investors, extending the demand for the dollar. The risk-off mood keeps undermining U.S. treasury yields, which broke the 1.30% mark on the downside during yesterday’s trading session due to the risk-off demand for bonds. Today, we have an empty docket for the Pound, although investors will eye U.S. economic releases with Retail Sales, Jobless Claims, and Philadelphia Manufacturing Index as the main headlines to drive today’s session, alongside market mood and treasuries performance.   


The Japanese Yen holds to its previous gains amid the broader risk-off mood in the global market which adds support to the safe-haven Yen. The Japanese currency attempts to consolidate higher against the greenback ahead of upcoming Retail Sales, underpinned by softer U.S. treasury yields. Ahead of the data release, the U.S. benchmark 10-year Treasury yields rose 2.2 basis points, recovering from the previous correction from yesterday’s trading session. On the data front, Japan recorded a trade deficit of JPY 635 billion in August, significantly higher than its previous release, capping the Yen’s gains against the dollar. However, several market participants and firms surveyed by Reuters believe that the Japanese economy will recover to pre-pandemic levels in 2022.  


The Loonie took control over the dollar (+0.54%) during yesterday’s trading session amid a softer greenback and soaring energy prices which underpinned the commodities-linked currency. Additionally, Loonie bulls capitalized gains following the release of Canadian inflation reports, which showed that headline inflation exceeded expectations in August, posting 4.1% annualized vs 3.9% previously anticipated. The Momentum was built amid disappointing U.S. readings earlier in the week, which induced hopes that Fed policymakers will delay tapering the bond purchase programme on its upcoming monetary policy committee next week. Moreover, the West Texas Intermediate (WTI) reached USD 73 per barrel after U.S. inventories showed a significant drawdown amid the storm season in North America and reactivated demand from China amid its paced recovery.   


The Mexican Peso continues to test the 1 month high against the dollar, failing to extend gains amid a mixed mood, which kept investors on a cautious stance. Rogelio Ramirez, Mexico’s Finance Minister assured the country that the economy is in a firm process of recovery from the crisis caused by the Coronavirus pandemic. The spokesman noted that government officials expect the Mexican economy to reach its pre-pandemic levels by early 2022, anticipating the post-pandemic boom as a result of government expenditure, global economic recovery, and higher investment and consumer spending. 


The Chinese Yuan reversed previous gains during today’s early hours of the trading session, amid mixed investor sentiment underpinning the greenback. Additionally, Chinese authorities continue their witch hunt, targeting miners who tried to disguise themselves as data researchers and storage facilities to stay in business. Inspections have intensified this month with search groups in colleges, research institutions, and data centres. Authorities argue that concerns over the country’s power supplies for the upcoming winter season is one of the reasons for the urgency. On the other hand, the offshore yuan (CNH) weakened the most in nearly a month, after China Evergrande Group intensified concerns over the impact of debt default which is rippling through the nation’s financial market, while Beijing attempts another push to rein in private industry, hurting market sentiment.  


The Brazilian Real stepped 0.33% higher against the dollar despite the greenback’s strength amid a cautious mood in global markets. Economists from the Bank of America cut their BRL forecasts given the escalation of political risks, fiscal issues, and negative flows scheduled by the end of the year. Vaccination rollouts keep improving in the country, although it is overshadowed by political turmoil between the executive, legislative, and judiciary branches. Moreover, Fiscal uncertainty continues to be an issue of concern, mainly due to the government’s plans to expand its social programme, and the need to accommodate court-ordered payments which keep deficit woes awake. 


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