Daily Market Pulse

Dollar gearing up for next week

USD

The U.S. dollar index rose on Friday, recouping some losses from earlier in the season (0.16%), as traders assessed various monetary policy decisions and prepared for the Federal Reserve meeting next week. European Central Bank’s decision to raise the rate by 50bps after a decade undermined the sentiments around the dollar. The Federal Reserve of the United States is on track to raise interest rates by another 75 basis points next week, defying expectations of a larger 100 basis point increase. Markets will be watching for the Fed's rate guidance, as any hawkish statement could boost the dollar and hurt other major currencies. Stock index futures in the United States are down between 0.3% and 0.8%. S&P Global will publish the flash Manufacturing and Services PMI surveys later during the day.

EUR

Although the euro gained strength (0.49%) following the European Central Bank's (ECB) decision to raise key interest rates by 50 basis points, it lost its bullish momentum early Friday as risk sentiment shifted negatively. In addition to the double-dose rate increase than anticipated, the ECB unveiled the Transmission Protection Instrument, a new anti-fragmentation tool (TPI). The bank also abandoned forward guidance by stating that every meeting will be streamed live and that data will be analyzed before making a decision. In other news, Italian President Sergio Mattarella has dissolved the Italian parliament, setting a September 25 snap election.

GBP

The Pound Sterling finished 0.18% higher on Thursday but began to fall on Friday. The data published by the UK's Office for National Statistics showed earlier in the day that Retail Sales declined by 0.1% on a monthly basis in June. In the year to June, sales were down 5.8%, compared to the market's expectation of a 5.3% decline. In other releases, the GfK Consumer Confidence Index in the United Kingdom remained at -41 in July 2022, a record low, as runaway inflation and economic uncertainty continued to dampen sentiment. In other news, the FTSE 100 traded sideways on Friday, reflecting a global cautious mood as investors digested new corporate earnings and economic data.

JPY

The Japanese yen surged by 0.62%  to its highest level in over a week, aided by a sharp decline in U.S. Treasury bond yields, but then reversed some of its gains ahead of the weekend. Domestically, Japanese Finance Minister Shunichi Suzuki said on Friday that rising interest rates could derail the economy's recovery, signaling support for the Bank of Japan's decision to maintain monetary stimulus despite a global tightening trend and rising inflation. In other news, Japan's composite PMI falls to a five-month low. This was the slowest rate of expansion in the private sector since February, with factory activity rising at the slowest rate in ten months and services growth at a three-month low amid raw material shortages, rising energy and wage costs, and a weakening yen.

CAD

Following the sour market mood today, the loonie fell after advancing 0.12% against the greenback yesterday. Traders attributed the drop in crude prices to slowdown concerns fueled by aggressive tightening by major central banks. In the most recent data releases. In June 2022, new home prices in Canada increased by 0.2% from the previous month, slowing from a 0.5% increase the previous month and falling slightly short of market expectations of a 0.3% increase. As higher interest rates dampen demand in the housing market, prices rose in 12 of the 27 census metropolitan areas surveyed, remained unchanged in 14, and fell in one.

MXN

The Mexican peso continues to fall in value after falling 0.35% in the previous session. Domestically, Mexico's finance ministry announced on Thursday that it had issued a 15 billion peso sustainable bond with a demand that was 4.4 times the amount placed. According to the ministry, the move strengthens the expansion of sustainable local debt in Mexico, which has increased by more than 300% since 2019. In addition, according to economist Gabriela Siller, the current downward trend indicates a higher likelihood of reaching a quarterly contraction of GDP in the third quarter of 2022, raising the possibility of an economic recession in Mexico, though he acknowledges that it is still too early to address the issue.

CNY

On Thursday, China's yuan fell 0.06% to a near one-week low against the dollar after the central bank set a weaker daily midpoint while simmering risks in the property sector dampened sentiment. Recent developments in China's property crisis were among the main market concerns, with some suppliers to China Evergrande Group saying they would stop repaying bank loans in protest of the distressed property giant's failure to pay. This comes on the heels of a broader risk by homebuyers to stop making mortgage payments on unfinished homes. In other news, the Shanghai Composite fell 0.06% while the Shenzhen Component fell 0.49%, falling for the second consecutive session and trailing Asia Pacific peers, with healthcare and technology stocks leading the decline.

BRL

Most of the emerging market currencies, except the Brazilian real, regained ground against the dollar after the European Central Bank released a half-point increase in the basic interest rate. the currency tumbled 0.63%, with fiscal and political issues acting as a negative factor. The movement of the commodities futures market, in the midst of the global recession scenario, is not providing enough support to the Brazilian currency. Meanwhile, according to local media, Economy Minister Paulo's team Guedes has spent the last few days pouring over the Budget figures and preparing the third block of funds for the year. The objective is to prevent government spending exceeds the spending ceiling. The cut in the transfers of the Budget may exceed R$ 5 billion and should be presented today. It's expected to see further cuts in the Science and Technology, Education, and Health portfolios.

 

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