The U.S. dollar index, a common tool used to value the greenback against a basket of six major currencies, rallied 0.52%. amid upbeat U.S. data and risk-off sentiment consolidating through yesterday’s trading session. Equity markets remain on the back foot ahead of quadruple witching, one of the four days during the calendar year when contracts of four different kinds of financial assets expire, including equity options (The days include the third Friday of March, June, September, and December). The dollar built momentum from the release of upbeat U.S. retail sales, which expected a contraction of 0.8% in August, while the economy showed resilience, posting 0.7% growth during the month. Additionally, the Philadelphia Fed manufacturing survey also left an upbeat tone, exceeding expectations at 30.7 vs 19 previously anticipated. The U.S. data renewed Fed tapering concerns, and market participants await for further input to adjust expectations. Today, the greenback is taking a breather as the Friday session kicks off slightly lower from yesterday’s highs. Coming up, U.S. morale indicators will provide valuable insight as investors eye the U.S. Consumer Sentiment Index from the University of Michigan.
The EUR remains subdued against the dollar, falling back 0.40% amid a broader risk-off mood consolidating throughout the course of the week, and upbeat U.S. data underpinning the greenback. The EUR recorded a short-lived uptick after the Financial Times reported that Philip Lane, Chief economist at the European Central Bank, privately signaled a faster inflation run-up and that a rate hike is coming in the next few years, leaving him in the eye of the media, although the ECB has denied reports. Earlier on during today’s session, European Current Account readings posted an increase in the surplus, posting EUR 30.2 billion vs 25.9 expected, underpinning the EUR from yesterday’s lows. Upcoming inflation reports will be a key driver for market participants to renew impetus, as headline inflation is expected to be 3% annualized while Core readings were at 1.6% from last year.
The British Pound closed 0.37% lower against the greenback on Thursday amid risk-averse jitters consolidating and solid U.S. data underpinning the demand for dollars. The pair was mainly driven by risk perception drivers and U.S. inputs, as the economic calendar remained light for Sterling. However, data flows resumed early today as the U.K. Office for National Statistics reported that the value of inflation-adjusted sales at the retail level unexpectedly fell 0.9% in August, although expectations were set at 0.5% growth. Core redesign also failed to impress, missing expectations at 1.2% in August, which capped the upside for cable despite the broader dollar pullback. Additionally, Consumer Inflation Expectations edged higher from its previous release, from 2.4% to 2.7% amid chatter from U.K. policymakers to adjust monetary policy.
The Japanese Yen erased gains built off the back of its safe-haven appeal during the course of the week amid a broader cautious mood and soft inflation data from the U.S. on Tuesday’s session. However, the pair flipped its momentum following the release of upbeat U.S. retail sales, which triggered higher U.S. treasury yields, underpinning the recovery of the greenback. However, the extent of the dollar recovery was capped by mixed jobless claims readings which left investors cautious. Additionally, Japanese data failed to provide support to the Yen as Trade Balance reports showed that imports grew at almost double the pace than that of exports, and recorded an expansion of deficit on the Merchandise Trade Balance dropping to JPY - 635.4 billion.
The Loonie lost momentum after U.S. retail sales and Philly Fed Manufacturing Index posted better than expected figures, pushing U.S. Treasury yields higher as renewed concerns of tapering to fill the market. The West Texas Intermediate (WTI) crude oil currently changes hands around USD 72 per barrel, consolidating gains from the latest drawdown in U.S. inventories earlier this week and output concerns over the impact of storm season in North America. On the data front, Housing Starts failed to impress, posting 260.2k vs 270.7k previously released in July, while Wholesale Sales contracted 2.1%, while market participants expected 2% contraction.
The Mexican Peso retraced 0.40% against the greenback following the upbeat data from the U.S., which underpinned the dollar diamond throughout the course of yesterday’s trading session. Moreover, Banxico announced that its foreign currency reserves diminished by USD 7 billion, bringing its total stock of USD 205 billion down to 198 billion. The reserves were bought by the Mexican government in what is said to be its largest foreign currency purchase since 2008, although the finance minister has not given any information on the reasons behind it. There is speculation that the funds will cover debts from Pemex, the state-owned oil company.
The Chinese Yuan retraced 0.37% amid China’s Evergrande interest default and strong U.S. data releases strengthening the greenback against most of its peers. The People’s Bank of China injected CNY 90 billion, the most short-term cash into the financial system since February, amid growing concern about China’s Evergrande Group debt crisis. Demand for cash is also rising due to quarter-end regulatory checks ahead of China’s golden week holiday in early October. The liquidity injection was welcomed by market participants, as the Hang Seng index is finally recording gains, after hitting 4 consecutive days of extending losses.
The Brazilian Real edged lower against the dollar amid strong figures in the U.S. providing support to the greenback. Former Finance Minister Joaquin Levy said Brazil's inflation is due to slow down as borrowing costs are expected to hit 8% by the end of the year. The spokesman expects that the measures should bring annual inflation in 2022 down to 4% from the current level of almost 10%, taking into account that factors that have pressured inflation the most this year will start to ease, alongside the virus vaccination rollout and bottleneck effects in supply chains.