Daily Market Pulse

Dollar eases after a safe-haven rally

USD

With hefty losses on Wall Street's main indexes on Wednesday, the U.S. dollar gained momentum versus its major rivals in the second part of the day and closed 0.46% higher. The dollar index eased this morning as investors weighed declining safe-haven demand against expectations that aggressive Federal Reserve rate hikes will drive additional dollar gains. Meanwhile, the dollar stayed strong after Fed Chair Jerome Powell recently stated that the central bank was committed to using its instruments to reduce multi-decade high inflation, even if it meant going beyond widely accepted neutral levels. In the equity markets, the S&P 500 Index sank more than 4% on Wednesday, while the tech-heavy Nasdaq Composite Index fell 5%. U.S. market index futures are down between 0.1 and 0.3% in the European morning. Moving forward, Manufacturing Survey will be featured in the U.S. economic docket for fresh impetus. 

EUR

The common currency lost the majority of its comeback on Wednesday and closed 0.82% lower before consolidating its losses this morning. In the latest headlines, European Central Bank (ECB) policymaker Madis Muller stated on Wednesday that he would support a 25 basis point rate hike in July and would not be shocked if rates were lifted past zero in 2022. While on a more cautious tone, ECB Governing Council member Pablo Hernandez de Cos stated that given the uncertainty surrounding the forecast, the process of hiking rates should be slow. Additionally, In Europe, markets began lower as concerns that high inflation is crimping corporate performance overshadowed bargain hunting for beaten-down stocks. Coming up, investors will see  the European Central Bank (ECB) publishing minutes of its April policy meeting

GBP

The Pound Sterling plunged 1.22% in Wednesday's session followed by a modest rebound on Thursday morning. The British Pound sank again in the third week of May, as investors assessed Office of National Statistics (ONS) data showing that the country's inflation rate surged to 1982-highs, exacerbating the country's cost-of-living crisis. The economy already contracted in March, and consumer spending power is squeezed further. In terms of inflation, Bank of England Governor Andrew Bailey recently stated that the current spike in prices is the central bank's most challenging problem since its independence in 1997. Furthermore, the likelihood of fast monetary tightening in response to the Fed chair's hawkish remarks alarmed investors. Elsewhere,  the FTSE 100 lost 1.5% on Thursday, extending a 1.1% dip the previous day and tracking its European and Asian rivals lower after Wall Street sold off the day before amid mounting fears about the impact of high inflation on the GDP outlook and company performance.

JPY

The Japanese Yen closed 0.89% higher in the previous session against the greenback. According to the most recent data, private-sector machinery orders in Japan increased by 7.1% on a seasonally adjusted basis in March 2022 from the previous month, beating the 3.7% rise projected by analysts and reversing the previous month's 9.8% fall. Furthermore, Japan reported a trade deficit of JPY 839.2 billion in April 2022, compared to a market estimate of JPY 1,159 billion and a surplus of JPY 226.8 billion the previous month. The latest result marked the ninth consecutive month of trade deficit, as exports increased by 12.5% year on year, the smallest increase in three months, while imports increased 28.2% to a new record high due to rising crude oil prices and a weak Yen. Elsewhere, the Nikkei 225 Index fell 1.89% on Thursday, while the broader Topix Index fell 1.31%, reversing gains from the previous two sessions, as disappointing quarterly results from major U.S. retailers sparked fears that the economic downturn is beginning to bite.

CAD

The Loonie closed 0.62% lower before recovering slightly this morning against the U.S. dollar. In the latest data release, Canada's annual inflation rate accelerated to 6.8% in April 2022, the most since January 1991 and slightly higher than market predictions of 6.7%, driven by food and housing as the Russian invasion of Ukraine pushed up energy and commodity prices. Food prices rose 8.8% in April due to increasing input costs such as fertilizers. In addition to this, the S&P/TSX Composite Index fell 1.9% on Wednesday in the stock markets, halting a three-session rise and tracking dismal global sentiments as rising consumer prices and the Fed's aggressive hawkish stance fueled renewed fears of a global economic downturn.

MXN

The Mexican Peso lost 0.49% against the greenback yesterday followed by a modest rebound this morning. The Mexican Peso fell to its lowest level in nearly four weeks, tracking a firm dollar. The U.S. dollar index rose amid expectations of aggressive monetary tightening after Fed Chair Janet Yellen stated that the central bank would raise interest rates as high as necessary to tame inflation, including raising rates above neutral. Meanwhile, the Mexican central bank raised interest rates to 7% for the eighth time in a row on May 12th, in line with major global central banks, to battle inflationary pressures caused by the Russia-Ukraine war. Coming up, investors will be focused on geopolitical headlines and market sentiments to provide a fresh momentum.  

CNY

The Chinese Yuan closed 0.19% lower in the previous session against the greenback. In the recent session, China's 10-year Government Bond yields fell to a four-week low of 2.804% amid signs of a faltering economy and expectations of more aggressive tightening by the U.S. Federal Reserve. Lockdowns in multiple cities, including Beijing and Shanghai, harmed consumer spending and hindered industrial production. Prolonged real estate troubles, as well as many defaults at developers such as the Evergrande Group, have added to fears about the economy's recovery, despite the People Bank of China's vows of ongoing support. At the same time, the Fed is expected to tighten monetary policy faster, and the interest spread between Chinese and U.S. government debt yields has narrowed, making riskier Chinese assets less appealing.

BRL

Yesterday, the Brazillian currency operated most of the session negatively against the U.S. dollar, ending the day by closing 0.25% lower. Meanwhile, according to market analysts, the major mining companies are projected to export fewer ores this second quarter, and the expected volume for the period would be 2.3% lower compared to the second quarter of last year. This low demand continues to be reflected in the international prices, where the material has already seen a 26% drop since the beginning of March. In general, lower prices show that the market does not expect Chinese policy pledges to increase infrastructure spending sooner. Because of Brazil's importance in the mining sector, the Brazilian currency is sensitive to mineral commodity prices. Elsewhere, in addition to the marriage of ex-president Lula, there was another surprise on the market. The Court of Auditors of the Union of Brazil voted on Wednesday to approve the privatization of the state-owned energy company Eletrobras, diluting its controlling interest through an issue of shares. Moving ahead, the Ministry of Economy will publish a report with to show macroeconomic trends including GDP and inflation. 

 

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