Daily Market Pulse

Dollar continues rising on hawkish tone


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, gained 0.04% on Wednesday’s closing session, followed by modest gains on Thursday’s opening. Investors paid little to no attention to the release of high-tier data from the U.S. yesterday. Meanwhile, Powell mentioned in his second testimony yesterday that it is appropriate to consider faster tapering in these times of high inflation. Despite his hawkish tone, the U.S. Treasury yields declined by 3% on Wednesday, followed by it regaining its ground by 2.5% in the early hours of Thursday, providing support to the greenback as investors diggest comments from Powell. Market participants will keep an eye on Initial Jobless claims data today, as well as the Omicron virus-related headlines, along with broader market sentiments, to provide fresh impetus to the greenback. 


The Euro tumbled by 0.16% against the greenback on Wednesday’s closing, followed by a modest fall before entering the trading hours of the European session on Thursday. The currency remains in recovery mode for the second consecutive week amid high inflation concerns and new virus-related headlines. The European Central Bank (ECB) has expressed worries over likely monetary policy tightening in December. Economists believe that ECB is expected to turn hawkish during the latter half of 2022 which will, in turn, provide ground for the Euro to rebound later in 2022. Market participants later today will look out for the October unemployment rate and producer price index figures, along with macro data release in the U.S. to provide fresh momentum for the Euro. 


The Sterling retreated 0.15% against the greenback during Wednesday’s closing, followed by it regaining its modest form in the early hours of Thursday. An uptick was observed during the early hours of Thursday, but it lacks any support to break higher. The UK-EU impasse over the Northern Ireland Protocol, and worsening row of French-UK fishing rights post-Brexit, are keeping a lid on any major positive movement. Meanwhile, investors are concerned about the newly detected Omicron virus, which can cause economic fallout before the Bank of England’s meeting in mid-December. The prospects for aggressive policy tightening by the Fed keep the dollar on the upper hand against the Sterling. Market participants, in absence of major economic data release today, will leave the Pound Sterling at the mercy of U.S. Dollar price dynamics. 


The Japanese Yen surged 0.34% against the U.S. dollar on Wednesday’s closing followed by a U-turn, losing ground against the greenback during the early hours of the European trading session. The U.S. dollar managed to gain positive traction as the risk sentiment in the global markets recovers. On the same note, a positive and hawkish Fed tone for the monetary policy and the resurgence of the U.S. Treasury yields provided support to the greenback against the Yen. The downside for the Yen is limited, backed by a positive note around the Equity market and the lingering concerns of the Omicron variant. Market participants now look forward to an economic data release from the U.S., followed by a speech by FOMC members to provide fresh direction for the Yen. 


The Loonie suffered 0.31% against the greenback on Wednesday’s closing, followed by it regaining its upwards momentum during the early trading session on Thursday. The Loonie gaining positive traction during the start of the European trading session is attributed to the price rise in Canada’s main export item, WTI crude oil. The black gold added 2% for the day, trimming two days' losses, and awaits OPEC+ members meeting for direction ahead. On the same note, the Bank of Canada’s Governor Tiff Macklem pushed for an interest rate hike during his recent appearance last week. Moving on, market participants will get cues from U.S. economic data releases and OPEC-related headlines to provide fresh impetus for the Loonie. 


The Mexican Peso suffered 0.27% against the US Dollar on Wednesday’s closing. Several drivers are holding the currency back against the greenback, which caused the Peso to fall against the US Dollar. Economists believe that after the U.S. dollar hits higher grounds in a few days, supported by various tailwinds, the market ahead will remain volatile due to the emerging Omicron virus variant, and traders are expected not to be aggressively bullish. Meanwhile, the Peso will continue to face the headwinds caused by Fed Chair Powell‘s testimony before the Senate, where he expressed his hawkish tone to combat the inflation and discussed policymakers’ agenda for accelerated tapering in the following year. 


The Chinese Yuan fell by 0.06% against the U.S. Dollar at the closing of Wednesday’s session. In the early Thursday session, the offshore Yuan fell against the U.S. Dollar, dropping from 6-month highs, as weaker-than-expected official guidance pushed traders to reduce long holdings. The People's Bank of China fixed the midpoint rate 23 basis points lower than the previous fix, indicating that officials may be concerned about the Yuan's rise as it approaches the highest level this year in both onshore and offshore markets. Currency dealers also observed that, despite significant corporate demand for the local currency for various payments, some of their corporate clients were taking advantage of a cheaper dollar to stock up on the greenback in morning deals. Moving forward, analysts forecast limited upside for the Yuan since authorities are expected to counteract the currency’s gain by indirect measures, such as increasing the foreign-currency reserve ratio and limiting currency speculation, among other things.


The Brazilian Real closed down 1.02% against the U.S. dollar on Wednesday's closing. The Brazilian currency extended losses for the fourth consecutive session yesterday. The current price levels were registered in early November, however, they did not last long due to advances with the PEC of Precatórios at the Lower House. Meanwhile, the global narrative and the current domestic situation are somewhat different from that observed a month ago, with growing bets on a more accelerated reduction in U.S. stimulus and the approval of the PEC already seen as certain and partially priced by the market. While the first factor lends a bullish tone to the U.S. currency, the second cease to be a relevant source of support to Real. Yesterday, Brazil's Senate approved the appointment of the evangelical pastor, André Mendonça, to fill a vacancy as minister of the Federal Supreme Court. Mendonça, who was approved by 47-32 votes, should add an even more conservative stance in the judicial body in the country. In the macro data release today, market participants will see the GDP for the third quarter, amidst projections indicating that the economy stalled or even retreated again. 


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