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U.S. Treasury yields underpin a stronger dollar

USD

The U.S. dollar index, a coefficient used to assess the performance of the greenback against a basket of six major currencies, seems to be gathering strength in the early hours of the Monday trading session as investors remain focused on the U.S. treasury yields in the absence of significant fundamental drivers and high-tier data releases. Later on the day, industrial production will provide some insights on the economic activity in the country while the Monthly Budget Statement could hint at any hiccups or updates in regards to the ongoing debt ceiling constraints at the Capitol. This week, market participants will remain tuned to Fed’s Beige Book, which reports on the current U.S. economic situation, through interviews with key business contacts, economists from several Federal Reserve Districts. Moreover, Jobless claims reports will continue to be closely monitored by market participants while the Philadelphia Fed manufacturing survey could provide renewed impetus alongside Markit PMIs by the end of the week.    

  • On Tuesday 10/19: Building permits ¦ Housing Starts
  • On Wednesday 10/20: Fed’s Beige Book
  • On Thursday 10/21: Philadelphia Manufacturing PMI ¦ Markit Services PMI ¦ Markit PMI Composite

EUR

The common currency kicks off the week on the back foot against the dollar, amid market participants focusing on U.S. treasury yields amid a lack of fundamental drivers. The EUR recovery attempt failed to convince market participants that the pair was about to reverse its downtrend. The European Central Bank’s dovish outlook remains intact and makes it difficult for the EUR to find traction due to policy divergence. This week, we expect Eurozone inflation reports on Wednesday followed by Thursday’s European Council Meeting and European Consumer Confidence Readings providing moral assessment in the old continent. Nonetheless, Friday’s PMI reports will close the week and will be closely watched by investors.   

  • On Tuesday 10/19: Consumer Price Index ¦ Consumer Price Index Core
  • On Thursday 10/21: Markit Manufacturing PMI ¦ Markit Services PMI ¦ Consumer Confidence

GBP

The British Pound closed last week with solid momentum amid British policymakers flagging their interest in tackling rising inflation by hiking interest rates before the end of the year. This week, the market seems to have kicked off slower as the Pound has failed to continue extending gains against the dollar amid a lack of fundamental drivers and cautiousness among market participants. Headline inflation reports, producer price index, and retail price readings are set to be released on Wednesday, followed by GfK Consumer Confidence on Thursday and Markit PMIs on Friday. 

  • On Wednesday 10/20: Consumer Price Index ¦ Retail Price Index ¦ PPI Core Output ¦ Consumer Price Index ¦ Retail Price Index ¦
  • On Thursday 10/21: Public Sector Net Borrowing ¦ GfK Consumer Confidence 
  • On Friday 10/22: Retail Sales ¦ Markit Manufacturing PMI

JPY

The Japanese Yen remains subdued against the greenback, falling back 0.24% during the early hours of the trading session amid cautious optimism weighing over the JPY’s safe-haven appeal and U.S. treasury yields driving the broader demand for dollars. Tomorrow, the merchandise trade balance is due to be released detailing import and export details for the Japanese economy. Given the broader Yen weakness, it will be interesting for investors to see the impact over international trade amid a competitive yen. Moreover, Thursday will be key as National Consumer Price Index will be published although it is expected to remain low amid dovish policymakers. 

  • On Wednesday 10/20: Merchandise Trade Balance ¦ Imports ¦ Exports
  • On Thursday 10/21: Foreign Investment in Japan Stocks ¦ Foreign Bond Investments  
  •  On Friday 10/22: National Consumer Price Index ¦ CPI Excluding Food, Energy ¦ Jibun Bank Manufacturing PMI

CAD

The Loonie kicked off the week with a softer tone, amid a greenback demand driven by U.S. treasury yields across most of its peers. The Canadian dollar has capitalized gains amid bolstered crude oil prices underpinning the commodity-linked currency. The recent growth figures from China fueled concerns about the return of stagflation amid Gross Domestic Product growing 0.2% during the third quarter and the yearly rate fell to 4.9% from 7.9%. This kept a lid of optimism and dented investors’ appetite for perceived riskier assets, which could extend CAD gains against the USD.

  • On Monday 10/18: Bank of Canada Business Outlooks Survey
  • On Tuesday 10/19: Wholesale Sales
  • On Wednesday 10/20; BoC Consumer Price Index Core ¦BoC Consumer Price Index ¦ Consumer Price Index
  • On Thursday 10/21: ADP Employment Change ¦ Employment Insurance Beneficiaries ¦ New Housing Price Index
  • On Friday 10/22: Retail Sales  

MXN

The Mexican Peso remained subdued against the dollar during the early hours of the Monday trading session amid a broader dollar strength driven by U.S. treasury yields and uncertainty around the polemic energy reform. President Andres Manuel Lopez Obrador and his party Morena, are leading a congressional initiative to began discussing the contentious reform proposal related to the electricity sector which is perceived to be unfriendly to market participants. Moreover, Banxico policymakers released the minutes of its latest monetary policy meeting which revealed that global inflationary pressures and bottlenecks in production continue affecting headline and core inflation in Mexico. Market participants will remain focus on Retail Sales expected on Thursday.  

  • On Thursday 10/21: Retail Sales

CNY

The Chinese Yuan remained relatively unchanged against the greenback despite the release of Gross Domestic Product figures during the early hours of the trading session. Earlier in the Day, the data from China revealed that the Gross Domestic Product (GDP) expanded by 0.2% quarterly in the second quarter after growing 1.3% in the second quarter. This reading missed the market consensus of 0.5% and caused risk sentiment to sour during the Asian hours of the trading session.  Moreover, Industrial Production also missed expectations posting 3.1% vs 4.5% previously anticipated. With growth figures out of the way, investors will focus on the upcoming interest rate decision from the People Bank of China scheduled for Wednesday. 

  • On Monday 10/18: Gross Domestic Product ¦ Fixed Asset Investment ¦ Industrial Production
  • On Wednesday 10/20: PBoC Interest Rate Decision ¦ House Price Index

BRL

The Brazilian Real closed out the week attempting a strong recovery after reaching multi-month lows. For this week, truckers call a strike. Once again, the union is threatening to paralyze the country. The truckers are said to be on a 'strike state' since last Saturday and, over the weekend, leaders of organizations in the sector criticized President Bolsonaro. Moreover, Ceara's government in Brazil signed a project for the production of green hydrogen at its new green hydrogen hub in the Pacem port complex. Authorities are eager on this new initiative which will be a fuel of the future amid the broader energy crisis in global markets which has affected directly the Brazilian economy amid frosts and floods.  

  • On Friday 10/22: Current Account | Foreign Direct Investments (Sep)

Quick Insights

USD: U.S. Treasury yields underpin a stronger dollar

USD: U.S. Treasury yields underpin a stronger dollar

EUR: EUR under pressure lacking fundamental drivers

EUR: EUR under pressure lacking fundamental drivers

GBP: Sterling takes a breather after a strong recovery

GBP: Sterling takes a breather after a strong recovery

JPY: Japanese Yen on the backfoot against robust Yields

JPY: Japanese Yen on the backfoot against robust Yields

CAD: Sustained crude oil prices underpin the Loonie

CAD: Sustained crude oil prices underpin the Loonie

MXN: Mexican government revises energy reform

MXN: Mexican government revises energy reform

CNY: PBoC interest rate decision eyed

CNY: PBoC interest rate decision eyed

BRL: Brazil launches energy initiative

BRL: Brazil launches energy initiative

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