Daily Market Pulse

US Dollar maintains momentum ahead of NFP

5 minute read


The U.S. Dollar Index, a benchmark used to value the performance of the greenback against a basket of currencies, maintained its momentum, advancing 0.26% during yesterday’s trading session. Strong ADP employment change and initial jobless claims figures increased expectations that Non-Farm Payrolls (NFP) will be positive this month, as opposed to previously when Fed officials flagged that not enough progress had been made on the Labor Market for policymakers to taper its bond purchase programme. Additionally, Delta Variant jitters continue to deteriorate the market sentiment as investors fly back to the U.S. looking for refuge before the uncertainty of how vaccines will withhold deaths and hospitalizations from the virus. However, the market remains calm ahead of NFP and the job report, as investors expect an increase of 700k new jobs in June, a significant increase from 559k in May.  


The EUR retraced 0.05% against the USD, amid strong European data which diluted a short-lived rally due to global COVID-19 concerns that continue to weigh on the common currency. Eurostat released upbeat Unemployment figures reporting 7.9% in May vs 8%, while Markit Manufacturing PMIs also overperformed expectations registering 63.4 in June vs 63.1 previously anticipated. Market participants keep ignoring recurring positive data from the EU ahead of the U.S. Job reports later today, which have set high global expectations due to a pick-up in preliminary job figures and economic activity. Besides important U.S. data coming up later today, Eurozone’s Producer Price Index is also due to be released, with market participants expecting a 9.5% year over year increase, followed by comments from European Central Bank President, Christine Lagarde. 


The Cable extended further losses, recording a 0.48% retracement during Thursday's trading session amid mounting Delta variant jitters and dovish comments from the Bank of England’s (BoE) Governor Andrew Bailey. The spokesman down talked current inflationary pressures and stated that these are likely to be transitory due to shifts in base effects and supply-demand imbalances due to the pandemic. On the Brexit side, the European Union and the United Kingdom have agreed to extend the grace period on the Northern Ireland border and put on hold the “sausage” tensions for the next three months.  


The Japanese Yen fell 0.39% against the greenback, following the strong momentum of the USD amid high Non-farm payrolls expectations and broader concerns around the spread of the Delta Variant in the APAC region. Market participants believe that how the Japanese Yen will behave in the coming weeks will depend on how the Fed communicates its monetary policy, as the widespread assumption is that the BoJ has no plans to tighten monetary policy for some time, which provides little support to the JPY amid domestic fundamentals in Japan.  


The Loonie stepped back against the greenback (0.33%), despite an increase in crude oil prices following the OPEC + meeting, due to growing concerns around the coronavirus strains. The OPEC+ alliance found an impasse after the United Arab Emirates (UAE) rejected the deal that would ease crude oil prices. Without the UEA joining forces with other members, it means that the cartel will not increase production at all and it is likely that it will remain unchanged until April 2022, risking an inflationary price spike globally. The West Texas Intermediate (WTI) jumped above USD 75, the highest price we have seen since October 2018. Coming up, International Merchandise Trade figures are due later today following Markit manufacturing PMIs to provide some fundamental data into the market.   


The Mexican Peso fell 0.28% against the dollar as investors' concerns continue to sour the market sentiment due to a global spike of coronavirus cases. Mexico's central bank would consider raising interest rates again in the case that inflation doesn’t slow down towards the 5% mark for the remaining months of the year. The latest inflation reading posted over 6% and market participants expect inflation to close 2021 at 5.58%, revised from 5.02% previously estimated. Today, the MXN economic calendar remains free, with all eyes on U.S. Non-Farm Payroll and job reports.


The Chinese Yuan edged lower (-0.15%) against the USD as solid preliminary labour market data underpins the demand for the greenback, while caution arises from growing COVID-19 strains. On the other hand, China has enabled the payment of the railway system using e-CNY. The digital Yuan is defined as legal tender in the Chinese territory, meaning that no entity can refuse it. The e-CNY network, according to the China Banking Associations, is built upon the concept of “one coin, two databases, three centres”, and policymakers are looking to extend the implementation of the e-CNY in the short term. 


The Brazilian Real was the worst EM performing currency against the USD, falling 1.6% during the Thursday trading session, amid virus worries and investors de-risking their portfolios. However, manufacturing activity in Brazil hit four-month highs in June following the upbeat PMI’s results which improve the prospects of growth. However, market participants believe that the end of the coronavirus pandemic remains in the distant future due to inefficient vaccination rollout programs which compromise the ongoing stable activity of the economy. Additionally, a politically heterogeneous group filed a request to impeach President Jair Bolsonaro, adding to a number of impeachment requests which are sitting on the Chamber of deputies. 


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