Daily Market Pulse

U.S. dollar tracks Treasuries performance


The U.S. dollar index, a common tool used to value the greenback against a basket of six major currencies, closed yesterday’s session relatively unchanged after the composite attempted to rally 0.25% and erased gains soon after. The greenback followed the behavior of U.S. treasury yields, which spiked from 1.58% to 1.62% and retraced back to where it started amid a shift in risk sentiment. The poor growth figures from China loomed on the global risk perception inducing uncertainty, which kept European stocks in red while U.S. indexes were mixed. The figures increased concerns about a slowdown in the Chinese economy, already hit by high inflation and supply chain disruptions, that could send shockwaves throughout the whole world. Additionally, the global increase in inflation keeps adding negative pressure on the Euro. The surging energy prices have pushed consumer inflation to 13-year highs in the Euro area, and are threatening to derail the post-pandemic recovery.  Moreover, capacity utilization readings came in line with the broader risk-averse mood, as readings showed that due to bottleneck issues, 75.2% of the capacity is already being used in the economy. However, the USD remained subdued during the early hours of today’s trading session amid expected low-tier data, with Building permits and Housing starts heading the list, while Fed officials Bowman and Waller are due to speak. 


The common currency lost steam through the course of yesterday’s session after the looming growth figures from China spooked investors and triggered a major equity sell-off in the European stock market. The sustained inflation and pressures from energy prices continue to loom on the prospects for winter, especially if a shockwave from a wounded China hits the crippled European economy. However, investors will stay expectant for upcoming inflation figures for September to assess the risks ahead of the European Council meeting on Friday. Today, the EUR makes way during the Asian trading session, while we expect construction output and several speeches from ECB members such as Elderson, Panetta, and Lane.  


The British Pound remained relatively unchanged against the dollar amid a broader uncertainty triggered by the poor growth readings from China, putting a halt to its rally for four consecutive trading sessions. Additionally, Brexit concerns also capped the potential of Sterling, with the European Union States growing weary of the Northern Ireland Protocol, Brexit, and the U.K.’s bad faith. Today, a major lack of data will keep the focus of market participants on risk sentiment and U.S. treasury yields. However, major inflation reports coming on Wednesday will keep the investor positioning cautious.  


The Japanese Yen remained on the back foot amid a major hike in the U.S. treasury yields climbing 1%, feeding on the demand for the dollar, although they lost momentum throughout the course of the day. However, the looming growth prospect in China kept investors cautious as fears of a shockwave spooked investor confidence, capping the pair to extend further gains. Although, today’s Merchandise trade Balance will provide a good insight for investors. Market participants expect imports to grow by 34.4%, while exports only by 11%, suggesting an expanding deficit in Japanese trade.   


The Loonie closed 0.25% lower against the dollar during yesterday’s trading session amid crude oil prices pulling back, following the looming growth figures from China. The West Texas Intermediate reached USD 83.18 per barrel during the early hours of the session, although it fell sharply following the looming prospects of growth in China, and closed the session at USD 81.65.  The sharp fall in crude oil prices removed solid support from the Loonie, snapping a four consecutive day rally against the greenback. Moreover, the Bank of Canada’s Business Outlook Survey for Q23 revealed that the business sentiment continued to improve in Canada, with the BoS indicator hitting 4.73 vs 3.96 previously anticipated. 


The Mexican Peso fell 0.44% against the dollar amid a broader risk of sentiment triggered by looming growth news from China. Moreover, the agricultural council warned that increasing dependence on imports is taking Mexico further away from food self-sufficiency. Authorities highlighted that imports have been growing significantly faster than exports, bringing examples such as rice which grew 70% to 83% since 2006, alongside wheat growing from 55% to  65%, and pork from 34% to 39%. The spokesman emphasized the importance of increasing domestic food production capacity, raising concerns over the economy and the current supply chain issues limiting the market. 


The Chinese Yuan remained relatively unchanged against the dollar despite disappointing growth results in china. The Chinese economy had a rough third quarter as the global supply chain challenge continued. The reports showed that the economy rose by 0.2%, way below its previous quarter which posted 1.2%, raising concerns amid Evergrande's imminent risks. The People’s Bank of China said that authorities are capable of containing the risks posed to the country’s financial system that could emerge from troubled China’s Evegrande group.


The Brazilian Real fell 1.11% during yesterday’s trading session amid a broader risk-off mood induced by concerns about growth readings from China and poor economic activity reported in August. The Brazil Central Bank has released the latest figures for the monthly index of economic activity, which showed that the economic activity shrank 0.15% in August compared with the previous month. In annualized terms, the proxy report showed that the economy grew 3.99% and the market participants expected to grow 5% by year-end.   


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