Daily Market Pulse

There could be big moves in currencies, equities, and Treasuries


Yesterday, the U.S. dollar was able to avoid losses against most of the major currencies. The U.S. dollar shrugged off February’s Industrial production report February and consolidated its gains ahead of the Fed’s rate decision. Although February industrial production dropped by 2.2%, well below the consensus of +0.3%, the market expects a huge rebound in production in March. Looking ahead, what makes this month’s Fed policy meeting so important is that there could be big moves in currencies, equities, and Treasuries. There are expectations that the Fed will not change rates or the pace of the Quantity Easing program. Also, Chair Jerome Powell might push back hard against the idea of imminent overheating and will resist taper talk.


Albeit the single currency traded strongly for most of Tuesday’s session, on the back of a firmer ZEW survey, by the end of the day, it had given up all of its gains to close 0.21% down against the greenback. The Euro is still under pressure due to an impasse over vaccine rollout and a dovish central bank that accelerated asset purchases to keep a lid on bond yields. The European Medicines Agency is set to deliver its verdict tomorrow but yesterday reiterated its view that the benefits of the Oxford-AstraZeneca’s shot outweigh the risks. Nonetheless, a majority of countries on the Continent have chosen temporarily to suspend administering the Oxford-AstraZeneca vaccine, due to fears of blood clot complications. On the economic data, new car registrations in the EU 27 fell by 19.3% year-over-year in February, after a 24% decline in January. This headline is worse than the market expected and should weigh on the Eur during today’s session.    


Once more, the Pound showed some losses (-0.05%) against the greenback on Tuesday amid higher expectations surrounding Today’s Federal Reserve monetary policy announcement and ahead of the Bank of England policy meeting on Thursday. Today, there is no significant data to be released. Therefore market players will eagerly wait for the U.S. headlines, as well as anticipate the pricing in another unanimous vote to keep U.K. Bank Rate at 0.10% and the end of year target for holdings of gilts and corporate bonds at £875B and £20B.


A cautious tone dominated Tuesday’s trading session, with investors waiting for the outcome from the U.S. Federal Reserve policy meeting, as well as ahead of Japan’s policy meeting on Thursday. Against this backdrop, the Japanese Yen erased the losses from the day before, with the JPY inching 0.15% up against the U.S. dollar. Earlier this morning, February’s trade balance data came out from Japan. Exports fell 4.5% year-over-year, after the 6.4% increase in January, below the consensus, -0.2%. Even though the recent data is not great, the prospects for March are. Exports should stabilize in the current month and may receive support from China, where GDP already shows signals of acceleration.


The Loonie printed gains (+0.27%) against its U.S. counterpart on Tuesday, as market players started to trade on expectations that the Bank of Canada (BoC) is likely to reduce its bond purchases in April. If confirmed, it is a clear signal that Canada’s economy requires less help to emerge from the Covid-19 pandemic crisis. Moreover, a reduction of bond purchases by the BoC could be supportive of the Canadian dollar, which has been the best performing G10 currency this year. Looking ahead, Canada's inflation figures for February are due today, which will provide fundamentals to help guide expectations for the Bank of Canada policy outlook.


Mexican peso touched a two-week high after closing 0.26% up against the greenback. This week is relatively quiet on the economic data front, therefore market players continue to trade influenced by international headlines. Yesterday’s focus was on the U.S. Fed's policy decision. The Fed has had interest rates hovering near zero for the past year and has promised to keep them there until the economy reaches full employment, and inflation has hit a sustained 2%. Covid-19 update: Mexico registered a daily decrease of 175 deaths (234 on the previous day) and 1,278 confirmed cases (from 1,439). The 7-day moving average of deaths decreased to 575, from 586 on the previous day. The total number of deaths now stands at 195,119, with 2,169,007 confirmed cases.  


The Chinese yuan closed almost unchanged (-0.09%), after trading most of the session in a thin range against the U.S. dollar, with traders and investors waiting for remarks and the outcome from a two-day U.S. Federal Reserve policy meeting. Chinese participants are assessing the yield gap between China and the U.S., although the differential remains wide, the recent surge in U.S. yields attracted foreign capital inflows into the U.S. On that note, capital inflows into China's bond and equity markets were among the key factors supporting the yuan last year. Meanwhile, the recent upbeat economic figures are still being digested and are likely to support the CNY.


The Brazilian Real slid 0.16% against the U.S. dollar, extending losses for the third trading session in a row, on Tuesday. Investors were cautious ahead of the interest rate decision today, however, recent job market data did not help the BRL. The country recorded 260K job gains in January, unadjusted, after a 68K drop in December. The recovery continues, but it will stall in Q1 due to the worsening of the pandemic and renewed lockdown measures. Today’s main event is Brazil’s Central Bank’s policy meeting, which is likely to hike the Selic interest rate by 50bp to 2.50%. This likely will be the first-rate hike since mid-2015. The economy is struggling, but inflationary pressures and political risk have increased substantially in recent weeks. 


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