Daily Market Pulse

Dollar steps back as global confidence reshapes


The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, retraced 0.52% during Monday’s trading session as confidence and upbeat sentiment regained control of the market. Fed officials James Bullar and Robert Kaplen tempered the hawkish narrative, as they believe the economy still has room for improvement before easing monetary policy. The U.S. dollar bounced back from prices last seen in early April as investors wrapped their heads around the Fed’s hawkish stance and renewed expectations over U.S. infrastructure spending that has contributed to restructuring the optimistic vibe. Later today, Jerome Powell, chairman of the Fed, will testify before the House Select Subcommittee on the coronavirus crisis where we are expecting him to ease concerns over inflation, arguing that current inflationary pressure should stabilize around the 2% target once supply chain bottlenecks have been resolved.  


The EUR bounced back against the USD, rallying 0.59% as investors dilute the effect of the Federal Open Market Committee last week. The demand for EUR comes supported by auspicious data and fundamentals in the block, coupled with higher morale, prospects of solid economic recovery, and restoring investor risk appetite. Christine Lagarde, President of the European Central Bank (ECB) said yesterday that the Euro area is brightening as the pandemic situation improves and that policymakers expect the economic activity to accelerate as of this quarter. Risks of new mutations and the spread of the virus continue to be a source of worry but prospects in global demand and a faster than anticipated inflation continue to build optimism around the bloc. However, it is unlikely that the ECB would tighten monetary policy as it would compromise the ongoing recovery and the outlook on inflation. 


The British pound rallied 0.96% against the American dollar, partially recovering lost ground from the appreciation of the greenback and pressure from the delay in the final stage of reopening the economy due to a surge in coronavirus cases. The U.K. Prime Minister Boris Johnson said during a press release that the government is now looking to lift all COVID-19 restrictions by the 19th of July. Moreover, Brexit negotiations are due to continue this week where the U.K. Brexit Minister David Frost will meet Maros Sefcovic, his European counterpart, to discuss breaking the deadlock in the Northern Ireland border. 


The Japanese Yen fell 0.23% against the dollar amid a lack of major catalysts and cautious sentiment ahead of days with a very light economic calendar. Moreover, Japanese equity markets edged higher with the Nikkei jumping over 2% while 10-year treasury Yields recovered slightly after hitting a recent 4 month low. However, market participants seem to be gaining confidence in riskier assets, although caution will remain ahead of Jerome Powells testimony before Congress later today. 


The Loonie advanced 0.47% against the dollar amid hawkish comments from Fed officials and an uptick in crude oil prices. Renewed tensions between the U.S. and Iran on nuclear talks triggered a 3% spike in crude oil prices on Monday. The West Texas Intermediate (WTI) recorded USD 73.45 per barrel, the highest since October 2018 fueling momentum on the Canadian dollar during yesterday's session. On the other hand, Fed officials said yesterday that the Fed will need to be ready to make adjustments to tapering and reiterated the benefits of adjusting policy sooner rather than later.    


The Mexican peso recorded 0.68% gains against the greenback as USD momentum fades and market sentiments shift to a more optimistic global note. Government officials announced the suspension of classes at school due to a surge in coronavirus cases in Mexico City. The news comes twelve days after children returned back to school amid rising concerns that a third wave of coronavirus cases is about to take place in the country. The country has registered an increase of 9% in the number of cases in the past week activating new measures to try and contain the virus. Government officials have flagged their concerns and new measures in order to avoid compromising the ongoing recovery. 


The on-shore Yuan registered mild gains (0.13%) against the greenback as the resurgent dollar paused ahead of the U.S. Federal Reserve chairman testimony to Congress later today. Market participants have witnessed that the Yuan has found support from recurring needs from companies to convert USD holding into CNY thanks to the ongoing recovery and uptick in economic recovery which has slightly eased. However, policymakers have stressed the importance for these companies to protect themselves against currency fluctuations as the Peoples Bank of China (PBoC) loses control over the exchange rate. 


The Brazilian Real continues to sustain pressure over the USD, recording 1.22% gains during Monday’s trading session. The recent Brazilian data shows signs that the economy has uptick beyond pre-pandemic levels. Although the policies from Jair Bolsonaro have been shown effective in terms of economic results, they came at the cost of loosening COVID-19 restrictions which have increased the total toll of death to 500k. Thousands of Brazilians took over the streets to protest against the government's response to the coronavirus pandemic as the death toll reached half a million. Additionally, the United Nations released its World Investment Report 2021, which shows the Foreign Direct Investment (FDI) flows in the world. The report concluded that flows to Brazil fell more than the regional and global average, dropping 62% during 2020 and recording the lowest levels of FDI in two decades. The report also flagged that flows into Latin America slump 45% and it was the hardest hit region amongst emerging markets.


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