Daily Market Pulse

The Dollar rises amid a risk-on mood

USD

The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, opened up with tepid gains/losses in the early hours of the new week after closing 0.59% higher on Friday. The recent gains come after Fed Governor Chris Waller said on Friday that an interest rate rise is anticipated shortly after the bank ends its asset purchases, causing investors to speculate on a March rate hike. Meanwhile, risky assets fell against the dollar as the Netherlands went into lockdown on Sunday, while other European nations faced stricter restrictions ahead of the Christmas season due to Omicron spreading. Elsewhere, rising Covid cases and stricter central bank policies kept U.S. market futures 1% down on Monday, while the 10-year U.S. Treasury bond yield declined 2.8% since the start of the day. Moving ahead, traders will see broader market sentiments and Omicron-related headlines to provide direction further. 

  • Wednesday 12/22/2021 - GDP Q3 annualized ¦ Core Personal Consumption Expenditure Q3 ¦ Consumer Confidence Index (Dec)
  • Thursday 12/23/2021 - Durable goods orders (Nov) ¦  Michigan Consumer Sentiment Index (Dec)

EUR

The Euro closed 0.79% lower against the U.S. dollar on Friday, although it regained momentum modestly during the early hours of the European trading session on Monday. The Euro fell dramatically last week, approaching a recent 17-month low amid fears about Europe's economic sluggish development as the area grapples with high inflation and the new COVID regulations. The Netherlands declared a state of emergency in response to the fast spread of Omicron, and Britain's health minister refused to rule out more restrictive measures before Christmas, while numerous nations put restrictions on tourists coming from the UK. Turning to monetary policy, the European Central Bank stated last week that it will slow the pace of its asset purchases in the next quarter, citing progress toward its medium-term inflation objective and economic recovery. Elsewhere, the Federal Reserve announced that it would accelerate its reduction of asset purchases, sparking wild speculation among investors. Looking ahead, traders will use border market sentiments in the absence of any major economic releases to provide fresh impetus to the Euro. 

  • Tuesday 12/21/2021 - Consumer Confidence index (Dec) 

GBP

The Sterling closed 0.58% lower against the greenback on Friday and continued to extend its drop-in Monday's early trading session. Despite the Bank of England's (BoE) surprise rate hike, growing Omicron cases in the nation are pulling down the Sterling. The BoE Interest Rate Decision was short-lived as traders concentrated on UK coronavirus data.  The number of daily new cases in the nation is at an all-time high amid Prime Minister Boris Johnson's political issues. Fear of more limitations may put pressure on the currency on future trading days. Elsewhere, The FTSE 100 index fell almost 2% on Monday, as investors feared the fast spread of Omicron Covid-19 might lead to regional limits. Later today, the UK will issue the CBI Industrial Trends Orders report for December, but traders are expected to concentrate on a broader market mood, which will be driven by concerns about the spread of Omicron in Europe and the UK.

  • Wednesday 12/22/2021 - GDP Q3

JPY

The Japanese Yen closed 0.04% higher versus the U.S. dollar on Friday before marginally extending its uptrend on Monday morning. The Yen surged as a result of its safe-haven attraction as new fears about the fast-spreading omicron variant forced tougher restrictions in Europe. The currency was further strengthened when the Bank of Japan (BoJ) said last week that it will reduce corporate debt purchases to pre-pandemic levels and reduce portions of its emergency financing plan once the March 2022 deadline arrived. The BoJ also kept its short-term interest rate goal at -0.1% and its 10-year bond yield objective at about 0%, as widely predicted. Elsewhere, the Nikkei 225 sank 2.13% on Monday, while the broader Topix slid 2.17%, extending losses from the previous session. Looking forward, risk catalysts will drive the price dynamics in absence of any major economic releases. 

  • Tuesday 12/21/2021 - BoJ monetary policy minutes 
  • Thursday 12/23/2021 - National Consumer Price index (Nov) 

CAD

The Loonie closed 0.89% lower against the greenback on Friday followed by continuing its downward momentum when entering into the European trading session. The Canadian dollar plummeted, touching a 17 week low as many major central banks' more hawkish policy stances contrasted with the Bank of Canada's (BoC) comments. Investors were gradually coming to grips with the fact that interest rate rises are on the way next year, with the Fed indicating three hikes by the end of 2022, the Bank of England (BoE) and the Norges Bank already raising borrowing rates, and the European Central Bank (ECB) slowing its bond-buying pace. Meanwhile, the BoC dashed investors' expectations for a shift to a more hawkish policy stance, citing the new variety Omicron as a source of concern over the economy's recovery. Elsewhere, the stock index S&P/TSX closed in negative territory last week as energy stocks were pulled down by lower oil prices, but advances in the healthcare sector softened the loss. Traders will look to the broader market risk sentiments and oil price dynamics to influence the Loonie’s price further. 

  • Tuesday 12/21/2021 - Retail Sales (Oct)
  • Thursday 12/23/2021 - GDP (Nov) 

MXN

The Mexican peso finished 0.02% lower against the U.S. dollar on Friday, erasing its two straight days of gains against the greenback and continuing its downward momentum as the new week began. The Mexican peso rose to a monthly high level after the central bank of Mexico (Banxico) unexpectedly raised borrowing prices by 50 basis points to 5.5%, marking the fifth straight rise this year. According to the monetary authority, the inflation risk balance has worsened, as both headline and core inflation expectations for the next year have grown again, and those for the medium term have remained above the target range. Lower oil prices, on the other hand, applied pressure to the currency as traders reviewed the demand forecast amid growing Covid cases internationally and a minor rise in the dollar. 

  • Tuesday 12/21/2021 - Private Spending Q3
  • Wednesday 12/22/2021 - Retail Sales (Oct) 
  • Thursday 12/23/2021 - First half month inflation (Dec)

CNY

The Chinese Yuan closed 0.10% down against the U.S. dollar on Friday. On Monday, the offshore Yuan fell against the U.S. dollar after the People’s Bank of China (PBoC) reduced its lending benchmark loan prime rate (LPR). In an effort to support the faltering economy, the nation cut its one-year LPR for the first time in 20 months, decreasing it by 5 basis points to 3.8%, as generally predicted. The currency has also been retreating from recent highs as traders reduced long holdings on fears that authorities may limit the currency's recent advances. Since mid-November, the People's Bank of China's official midpoint has consistently been lower than market forecasts. The central bank has also increased its purchases of foreign currency from banks and increased the foreign exchange reserve requirement ratio by 200 basis points to 9% effective December 15. Furthermore, a former top official with China's foreign currency regulator has warned of yuan weakening in 2022 if economic data continues to disappoint. 

  • Monday 12/20/2021 - PBoC interest rate decision 

BRL

The Brazilian Real closed 0.03% higher against the U.S. dollar on Friday before losing its momentum on Monday morning. This comes after investors considered the recent results of major central bank meetings as well as the uncertainties surrounding the economic implications of the Omicron version. Investors were gradually coming to grips with the fact that interest rate rises in the United States are impending, with the Federal Reserve forecasting three hikes by the end of 2022. Meanwhile, minutes from Brazil's central bank revealed that the monetary authority had weighed a rate rise of more than 150 basis points due to worries about fiscal deterioration and slowing GDP growth, which stood at -0.4% in October against the expectations of -0.2%. Elsewhere, the Brazilian index Bovespa dipped 0.5%, ending a two-week winning streak.

  • Thursday 12/23/2021 - GDP (Nov) 
 

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