Daily Market Pulse

Dollar rises to 20 month high


Markets were dominated by safe-haven flows in the second part of the day on Tuesday as Russia's continued aggression against Ukraine, despite tough sanctions imposed by Western nations, drove investors to seek safety. The U.S. dollar closed 0.65% higher yesterday, extending gains for the third session, and maintained its surge this morning, reaching 20-month highs. Investors were also concerned that the conflict's inflationary risks and supply disruptions might weaken the global economy, posing a challenge for policymakers ahead of the Federal Reserve's policy meeting later this month. Markets are anticipating ADP employment statistics expected out today, as well as Fed Chair Powell's presentation in Congress to provide his semiannual monetary policy statement. In other news, the 10-year U.S. Treasury note yield fell over 6% and fell below 1.7% for the first time since early January. The West Texas Intermediate crude oil price increased by more than 10% and was last spotted trading at its highest level since September 2013 at $109.30. The S&P 500 lost 1.5% on Tuesday, and S&P 500 futures are trading flat for the day.


The Euro closed 0.84% lower on Tuesday and appears to be heading downwards modestly during this morning. The Euro fell further to its lowest level since May 2020, as the conflict in Ukraine clouded the prospects for the economy just as inflation began to take root in the eurozone. Governments throughout the world have imposed unprecedented sanctions on Russia, focusing on its finance, energy, and military-industrial sectors. Money market futures tied to the European Central Bank's meetings this year now price in a total of 25 basis points by year's end from around 30 basis points on Monday and 40 basis points late last week. With investors reducing their expectations on European Central Bank rate hikes this year, it appears that the euro is finding it harder to attract new buyers. In other news, European stocks recovered losses as investors weighed the impact of Russia's invasion of Ukraine on economic development and commodity supplies. Oil surpassed $110 per barrel. Going forward, Inflation statistics from the eurozone, as well as geopolitical news, will drive Euro prices further. 


The Pound Sterling closed at 0.71% lower yesterday although reversed some of its losses on Wednesday morning. The British pound fell to its lowest level in ten weeks as investors sought refuge in safe-haven currencies as the war in Ukraine escalated. On the sixth day of Russia's invasion of Ukraine, Russian forces are approaching the capital, Kyiv. Meanwhile, house prices in the UK increased by 12.6% year on year in February 2022. This is up from 11.2% in January and beyond market estimates of a 10.7% gain, indicating the strongest growth rate since June last year. Furthermore, the yield on Britain's 10-year Gilt (Government Bonds) rose to 1.16% from a seven-week low, boosted by expectations of higher interest rates after BoE Saunders and L Mann indicated there is a need to move quickly to keep inflation in line. In other news, the FTSE 100 rose on Wednesday, beating its European counterparts and recovering from the previous session's 1.7% decline, as investors continued to monitor the Ukraine war and the potential of stronger sanctions prompted caution.


The Japanese Yen closed 0.06% higher in the previous session against the greenback. The yen edged up against the U.S. dollar on Wednesday but came under pressure as investors sought the safety of the U.S. dollar amid fears that the situation between Russia and Ukraine will worsen. Japan also said on Monday that it will freeze Russia's yen-denominated foreign reserves as part of the G7's measures to tighten sanctions against Russia. Meanwhile, Japanese corporations raised expenditure on plant and equipment by 4.3% year on year in the October-December period, as corporate activity recovered from the effects of the coronavirus pandemic. On Wednesday, the Nikkei 225 Index slid 1.68%, while the wider Topix Index fell 1.96%, as investors weighed the economic repercussions of soaring oil prices caused by the ongoing crisis between Russia and Ukraine.


The Loonie closed 0.54% lower in the previous session before consolidating its losses this morning. Market sentiment was shaken by growing concerns about the impact of tough sanctions imposed on Russia following its invasion of Ukraine. Soaring commodity prices put a floor underpricing. On the statistical front, the most recent GDP figures reveal that the Canadian economy grew an annualized 6.70% on quarter at the end of 2021, slightly exceeding market expectations. The latest GDP figures reveal that the economy recovered substantially in the fourth quarter of 2021. Furthermore, the IHS Markit Canada Manufacturing PMI rose to a three-month high of 56.6 in February 2022, up from a six-month low of 56.2 in January, marking the 20th consecutive month of growth. In the next few days, the Bank of Canada is likely to announce its interest rate decision. The latest inflation statistic of 5.1%, the highest in 30 years, in January adds to the pressure on the Bank of Canada's decision today.


The Mexican Peso plunged 0.92% in the last session before losing its momentum this morning. This comes as the Ukraine-Russia crisis enters its sixth day, with investors flocking to safe-haven U.S. dollars amid a risk-off mood. On the data front, Mexico's seasonally adjusted manufacturing confidence index increased to 52.6 in February 2022, up from a downwardly revised 50.9 the previous month, which was the lowest figure in eight months. Furthermore, the IHS Markit Mexico Manufacturing PMI increased to 48 in February 2022 from 46.1 the previous month. The most recent report indicated that factory activity contracted for the 24th straight month, but at a slower pace. Output continued to fall due to a scarcity of raw materials, problems in the automobile sector, and weak sales, but the rate of decline slowed. Moving forward, traders expect broad market sentiments and geopolitical headlines to provide further impetus to Peso prices.


The Chinese Yuan closed 0.08% lower in the previous session against the greenback. On Wednesday, the Yuan hovered near 4-year highs against the U.S. dollar, while its value against major trading partners remained above a 12-year high, reflecting a strong loss in the Russian ruble. Large onshore company holdings of foreign currency receipts as a result of a trade surplus position in recent years have also made the Yuan largely resilient to external risk aversion. Furthermore, despite geopolitical turbulence, the Chinese currency has remained relatively solid and stable, making it appealing to safe-haven flows. The steps come after the People's Bank of China recently poured more liquidity into the financial sector and lowered various policy loan rates, signaling its willingness to loosen monetary policies even further to assist economic growth.


The Brazilian Real stayed unchanged due to the Carnival holidays as market participants return to their tables this Wednesday. Today, the Brazilian currency must fundamentally react to international headlines, with Putin citing nuclear weapons to intimidate Europe and the U.S. In addition to the significant increase in the barrel of oil, mineral commodities and agricultural products are also a good measure to monitor the market's perception of geopolitical tensions. Elsewhere, Brazil's 10-year government bond yield remained in a narrow range near 11.30% in March as investors continued to monitor the prospects for inflation and the Central Bank of Brazil's rate hikes.


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