Daily Market Pulse

Dollar surges amid stimulus package talks


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, retreated 0.30% on Thursday's closing. It followed upside traction during the early hours of Friday, erasing losses from the previous session, and is looking to close out the week with momentum. The greenback gauges the U.S. Treasury yields and inflation expectations, which triggered a downside pressure for two consecutive days. Talks around Biden’s U.S. stimulus package provided upside support to the dollar index today and pushed equity futures higher, while stock indexes remained mixed amid cautious optimism and growth expectations. Market participants did not show a significant reaction to improved Philly manufacturing readings and initial jobless claims, although investors await speeches from Fed officials Waller and Clarido to renew market impetus. Additionally, the White House expects Build Back Better (BBB) will reduce the federal deficit by $112 billion over the next decade. This stimulus chatter from America was followed by talks in China and Japan, bolstering the U.S. Treasury yields and dollar index for the early hours of today.


The Euro managed to gain 0.46% against the greenback on Thursday’s closing, followed by breaking momentum ahead of Friday’s European trading session. The Euro stays pressurised, down for the first time in three days during the early hours of trading amid a recovery in the U.S. dollar and dovish comments from European policymakers. The European central bank’s president Christine Lagarde mentioned that inflation pressures are expected to fade in the near term, and do not require a rate hike, pushing the rate hike beyond 2022. The dovish comments broke the Euro’s momentum ahead of the weekend during the early hours of Friday. Looking ahead, German central bank president Jens and European central bank’s president Lagarde will join Fed policymakers' comments to provide direction for the currency. 


The Sterling managed to advance 0.06% against the greenback on Thursday’s closing, followed by further upbeat gains from the strong print of UK retail sales data. The UK retail sales data came at 0.8% for October, against expectations of 0.5%. Additionally, it is core retail sales, stripping the automotive fuel sales, stood at 1.6% month on the month against the expectations of 0.6%, providing strong support for cable in the early trading session today, up 0.09% during the day. Economists believe that labour shortage in the region is likely to pressure the Bank of England to raise rates. Furthermore, Brexit negotiators are expected to meet in Brussels later in the day, which might provide further direction for Sterling. 


The Japanese Yen suffered 0.16% losses on Thursday's closing following an upbeat momentum in the early hours of Friday, adding 0.19% on the currency pair, triggered by the approval for the fiscal stimulus package. The Japanese government announced the approval of a mega stimulus package of JPY55.7 trillion Yen on Friday, and it is aimed to combat Covid-19 and boost GDP by around 5.6%. The Japanese government expects the Bank of Japan to exercise appropriate monetary policy amid pandemic and market volatility. Economists anticipate that domestic overseas monetary policy divergence and negative FX supply-demand due to heightened oil prices and energy costs will weigh on the currency in the short term. 


The Loonie currency reversed its direction followed by its strongest levels in a month, edged 0.06% higher against the greenback on Thursday's closing, following a downside during the early European trading sessions. The Loonie is currently waiting for Canadian retail sales data to correct the pullback. Stronger data is likely to bolster inflation concerns and add pressure to Canadian policymakers to start tightening monetary policy sooner rather than later. The recent support was provided by WTI prices bouncing back after retracing 10% from its multi-year highs. However, U.S. dollar bulls are back in the game after two days of decline, which might spoil WTI-led advances. Looking ahead, inflation concerns and economic data releases will shape the currency against its American counterpart. 


The Mexican Peso suffered 0.61% against the dollar on Thursday's closing. The outlook for the Latin American currency looks less gentle in the near term. Although the tightening of Banxico’s cycle serves as a resistance for downward movement, the U.S.’s monetary policy and a fragile market mood create less optimistic market sentiments for the Peso. Traders are expected to remain cautious, especially in the next week, amid the thanksgiving holiday in the U.S. providing thin liquidy conditions. 


The Chinese Yuan showed 0.13% losses against its American counterpart during Thursday’s closing and continues to slide further during the early trading hours of Friday. Economists at Danske claim that the Yuan has strengthened against the dollar during the year and is now up 10% vs last year's bottom. Additionally, they anticipate that although the Yuan will strengthen in the near term, it might get weaker in the long term. U.S. goods consumption will remain stronger during the year providing trade surplus and underpinning the Renminbi to advance. In 2022, lower U.S. consumption and PBoC vs Fed rate divergence might prove a headwind for the currency. 


The Real closed in decline against the dollar for the fourth consecutive session. The currency accumulated a drop of 1.39% in the month and 7.36% in the year. The Brazilian stock market is also far from having a positive performance, with the Bovespa index showing another day of losses and recording its lowest level in more than a year. The domestic scenario, with the PEC of the Precatórios in the spotlight, does not encourage the demand for Brazilian assets. It is rumored that the original proposal will undergo drastic changes, with the possibility of slicing and unfolding the text to ensure that the payment, in December, of R$ 400 of ¨Auxílio Brasil¨, is made. The alternative PEC presented by some senators proposes to ensure the payment of R $ 89 billion precatórios next year, excluding these expenses from the spending ceiling. Another suggestion is to make ¨Auxílio Brasil¨ a permanent programme, and not have it come into effect until December 2022, as predicted by the government. Regardless of the current version of the bill, the president of the  House of Representatives, Arthur Lira, continues sewing alliances inside and outside the Senate, in the hopes that the approval of the PEC   takes place until November 30.


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