Daily Market Pulse

Dollar continues to outperform its rivals


After a strong start to the new week, the dollar has continued to outperform its rivals. The U.S. dollar index closed 0.27% higher yesterday on the strength of rising U.S. Treasury bond yields and continues to rise further early Tuesday. In a statement issued on Monday, Kremin stated that there had been no major progress in peace talks with Ukraine and warned that an EU embargo on Russian oil would "hurt everyone." Meanwhile, Federal Reserve Chair Jerome Powell stated that rates could be raised by more than the previously allowed 25 basis points if necessary to manage excessive inflation. In other news, stocks rose along with U.S. equity futures as a bond selloff deepened Tuesday as a result of Federal Reserve Chair Jerome Powell's hawkish statements. Going forward, In the absence of major economic data, market investors will keep a careful eye on central bank rhetoric and developments in the Russia-Ukraine crisis.


The Euro closed 0.19% lower on Monday before showing signs of recovery this morning. The common currency lost its steam after Fed Chairman Jerome Powell signaled a more hawkish approach to inflation control. Meanwhile, the Euro is being supported by the European Central Bank's (ECB) expectations of rising interest rates to combat inflation. Many experts anticipate the ECB will raise interest rates this year, and traders are keeping an eye on developments surrounding Russia-Ukraine ceasefire talks. Money markets are now pricing in two quarter-point raises in 2022, up from less than one at the start of the month. In other news,  according to a Brisbane-based miner, producers of power-station coal in Australia, the world's second-largest exporter, have limited capacity to transfer cargoes to Europe to help replace Russian fuel.


The Pound Sterling closed 0.15% higher and continued to uptrend on Tuesday morning. The currency regained its momentum following the comments by UK Chancellor Rishi Sunak. "Ongoing unpredictability generated by global shocks means it's more necessary than ever to take a cautious approach to public finances," said Rishi Sunak. Furthermore, the market's recent euphoria as a result of news from Ukraine and Russia, which favors the FTSE 100 to register minor gains, lent support to the currency. Meanwhile, statements from the UK's Lords sub-committee on the Brexit protocol call the recovery efforts into question. "A House of Lords committee has cautioned that the UK and EU must do more to clarify how changes to EU legislation may affect Northern Ireland," according to the BBC. Moving forward, market participants are keeping an eye on events surrounding the Ukraine-Russia peace talks for new impetus ahead of the UK Consumer Price Index (CPI) and retail sales numbers due out on Wednesday.


The Japanese Yen closed 0.34% lower in the previous session against the greenback. The currency appeared to be falling to 6-year lows as Bank of Japan (BoJ) Governor Haruhiko Kuroda reiterated the need to maintain the ultra-loose monetary policy as recent cost-push inflation could harm Japan's economy, emphasizing the widening gap with the Federal Reserve's aggressive tightening plan. According to Kuroda, rising consumer prices due to greater energy and food expenses will harm the economy in the long run by reducing corporate earnings and household real income. In its most recent meeting, the BoJ maintained its enormous stimulus and warned of increased risks from the Ukraine crisis, as predicted. In other news, the Nikkei 225 surged 1.48% on Tuesday, while the Topix rose 1.28%, both benchmark indices reaching their best in a month as investors celebrated the relaxation of all Covid emergency limitations in Japan on Monday.


The Loonie closed 0.12% higher in the previous session before losing its steam on Tuesday morning. The Canadian dollar strengthened against the U.S. dollar at its highest level in nearly two months, supported by increased commodity prices, particularly oil. Oil, one of Canada's primary exports, rose as European Union countries pondered joining the U.S. in a Russian oil embargo and following a weekend attack on Saudi oil installations. West Texas Intermediate (WTI) crude futures were trading above $110 per barrel, while Brent Crude was trading at $115 per barrel. Meanwhile, higher-than-expected domestic inflation figures for February bolstered predictions that the Bank of Canada will keep its hawkish posture throughout the year. In other news, the S&P/TSX composite index surged 0.9% for the first time, supported by the heavyweight oil sector as the Ukraine conflict sent crude futures up 7%.


The Mexican Peso closed 0.13% higher yesterday, continuing its recovery from three month low against the greenback. The Mexican Peso rose against the greenback at the highest level in three weeks, as a result of rising commodity and oil prices amid the sanctions imposed on Russia, reinforcing predictions that the central bank will raise interest rates next Thursday, despite evidence of a weakening economy. On concerns about inflationary pressures, Mexico's central bank raised interest rates for the sixth time in a row in February, raising borrowing prices to 6%, the most since April 2020. On the domestic front, Mexico City's newest airport, which opened on March 21, is intended to relieve congestion at the mega-major city's hub. The Felipe Angeles airport was once a military base that was converted into a commercial airport in around two and a half years by the army. It is the first of Lopez Obrador's significant infrastructure projects to be finished, and it is intended to highlight the efficiency and austerity of his government.


The Chinese Yuan closed 0.02% higher in the previous session against the greenback. Following days of increased volatility, the Yuan attempted to stabilize against the U.S. dollar on Tuesday but remained under pressure after Federal Reserve Chair Jerome Powell hinted overnight at more U.S. rate hikes to keep too-high inflation under control. This contrasted sharply with the People's Bank of China's (PBOC) approach, which is widely expected to loosen monetary policy further to counteract adverse economic pressures. Investors were particularly concerned about China's worsening Covid situation and the economic impact of lockdowns. Meanwhile, the PBOC held its benchmark rates for business and household lending steady for the second month in a row in March.


The Brazilian currency presented the best performance in the world this Monday, by closing 1.84% higher yesterday against the U.S. dollar. The absence of local drivers signals that the flows that fueled a rise in the first two months of the year may be picking up as higher commodity prices improve the country's terms of trade. Meanwhile, the continuous escalation of commodity prices increases inflationary risks, potentially limiting the ability of the Central Bank to end the cycle of monetary tightening in the next month – as the COPOM members had indicated. In this way, market participants may be pricing in the likelihood of further increases beyond the Central Bank's upcoming meeting, which lends strong support to Real. Elsewhere, easing exchange rate pressure, however, requires caution, as elections must enter investors' radar more strongly in the coming months.


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