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Dollar rises amid faster tapering pace expectations

USD

The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, edged 0.51% higher on the closing of last week followed by a slight receding move at the start of a new week. The improving market mood is threatened by the rise in covid cases in Europe, leading to a national lockdown in Austria, while expectations of another stimulus package in China provide optimism. The Federal Reserve’s (Fed) hawkish comments provided support to the dollar last week amid expectations of a faster pace in tapering and interest rate hikes as soon as April 2022. The downside remains cushioned as US treasury bond yields snap their three-day downtrend and surged by 1% following the Friday dip. Investors are awaiting data from the Federal Reserve Bank of Chicago on the National activity index and October’s existing-home sales data. The US stock index futures are posting modest gains, suggesting that Wall street’s main indexes can open on a firm footing. This week, market participants will tune in for President Biden’s speech on Tuesday, followed by the all-important Durable Good Orders, Gross Domestic Product readings, and Core Personal Consumption Expenditures on Wednesday. 

  • On Tuesday 11/24: Personal Consumption Expenditure ¦ Core Personal Consumption Expenditures ¦ Wholesale Inventories ¦ Personal Income ¦ Good Trade Balance ¦ Personal Spending ¦ Michigan Consumer Sentiment ¦ FOMC Minutes 
  • On Thursday 11/25: Thanksgiving day ¦ Initial Jobless Claims 
  • On Friday 11/26: Durable Good Orders ¦ Nondefense Goods orders 

EUR

The Euro suffered 0.71% losses against the greenback on last week’s closing, followed by fresh selling in the early hours of the European session today. The Euro remains undermined against the greenback amid monetary policy divergence between the European Central Bank (ECB) and the Fed, which seems keen to pick up the pace of tapering. The Fed has announced there will be a rate hike in mid-2022 while the ECB has not mentioned any talk on rate hikes in the next year. Additionally, the dollar gets reinforced backed by a rebound in US treasury yields across the curve. Investors are keeping an eye on the European Commission’s release of primary consumer confidence data for November later in the day, in addition, Markit PMIs later on Tuesdays followed by several speeches from ECB policy members, including President Christine Lagarde.

  • On Monday 11/22: Consumer Confidence 
  • On Tuesday 11.23: Markit Manufacturing PMI ¦ Markit Services PMI ¦ Markit PMI Composite
  • On Friday 11/26: Private Loans ¦ M3 Money Supply 

GBP

The Sterling retreated 0.32% against the greenback during the last week’s close erasing the majority of its weekly gains followed by a tepid recovery on the opening session of the European trading amid improvement of risk sentiment. The recent uptick is bolstered by an improving market mood due to expectations of a faster Fed tapering. Further gains appear difficult as the US currency remains robust and Brexit negotiations loom. On the Brexit front, European Commission vice president Maroš Šefčovič cited that negotiations require more urgency. This week, Her Majesty’s Treasury is due to provide its Autumn Forecast Statement to Parliament.  The broader market sentiments, Brexit-related headlines, and data release will shape the forward direction for the Sterling.

  • On Tuesday 11/23: Markit Manufacturing PMI ¦ Markit Services PMI ¦
  • On Wednesday 11/24: Autumn Forecast Statement

JPY

The Japanese Yen suffered a 0.24% loss on last week’s close against its American counterpart followed by extending Friday’s sell-off in the early hours of the trading session today. The bid continues in tandem with a recovery in treasury yields ahead of this week’s Fed minutes. Market participants are betting on broader market sentiment across the Yen backed by the positive mood around equity markets, however, the greenback is expected to hold its ground due to the risk-off market mood and anticipation of rate hike timing hints by the Fed, triggering the upside for US treasury bonds, in turn, benefiting the dollar. Moving ahead, traders will take cues from Wednesday’s data release on prelim US Q3 GDP print and core PCE price index followed by FOMC meeting minutes to provide impetus to the currency pair. 

  • On Monday 11/22: Labor Thanksgiving Day
  • On Monday 11/23: Jibun Bank Manufacturing PMI
  • On Thursday 11/25: Corporate Service Price Index ¦ Coincident Index ¦ Leading Economic Sentiment
  • On Friday 11/26: Tokyo Consumer Price Index 

CAD

The Loonie endured 0.30% losses against the greenback on the closing of last week followed by extending its sideways consolidating move in the early hours of the European trading session. Hawkish Fed expectations amid rising treasury yields and covid jitters provide safe haven for the US dollar. The supporting factor was offset by rebounding oil prices for the commodity-linked loonie, providing a cushion for further downside movement. Market participants are awaiting data on the US existing home sales in the early North American session. This along with oil price dynamics and broad market sentiments will provide impetus to the currency pair. 

MXN

The Mexican Peso suffered 0.25% against the US dollar on last week’s closing followed by extending its downward movement during the early hours of the first day of the new week. Economists expect that dollar will march forward against the Peso during the year 2022 amid rising bond yields. The short-term trajectory will be provided by domestic and energy sector policies as well as the relative policy stance of Banxico against the Fed, however, the peso is expected to remain under pressure somewhat in line with other EM currencies. The long-term bond yield is expected to reach 8.6% by the end of 2022 and keeps pressure on the Peso in the long run. 

  • On Tuesday 11/23: Retail Sales
  • On Wednesday 11/24: 1st Half month Core Inflation 
  • On Thursday 11/25: Gross Domestic Product 
  • On Friday 11/26: Trade Balance 

CNY

The Chinese Yuan showed 0.02% losses against its American counterpart during Friday’s closing following by a slight gain on Monday morning. In the trading session today, the People’s Bank of China has set the Yuan at 6.395 against the estimation of 6.388 on Monday, weaker by 0.2%. Against the weaker setting, the Yuan managed to gain due to corporate demand. Demand from companies to convert their foreign exchange into Yuan largely offset the rising dollar. The potential for divergence in the monetary policy of China vs the US can trigger volatility for the Yuan, however, hopes for possible US-China tariff reductions and China’s growing trade surplus could continue to support the Yuan.

  • On Monday 11/22: PBoC Interest Rate Decision 

BRL

The Real closed in decline against the dollar for the fifth consecutive session. The currency accumulated a drop of 0.79% on the closing of last week's session following the downside move entering the first day of the new week. Rate traders are increasingly skeptical that Brazilian officers can rein in skyrocketing inflation, two years bond yields are at 11.36%. The new spending plans add risk to the nation's currency and the Central Bank’s attempts fail to make an impact. The divergence in fiscal and monetary policy is creating discomfort for the near and long term. 

  • On Thursday 11/25: Current Account ¦ Mid-month Inflation 

Quick Insights

USD: Dollar rises amid faster tapering pace expectations

USD: Dollar rises amid faster tapering pace expectations

EUR: Euro down on monetary policy divergence awaits data

EUR: Euro down on monetary policy divergence awaits data

GBP: Sterling slides amid a strong dollar and Brexit negotiations

GBP: Sterling slides amid a strong dollar and Brexit negotiations

JPY: Yen slides back amid strengthening US treasury yields

JPY: Yen slides back amid strengthening US treasury yields

CAD: Loonie declines by hawkish fed expectations

CAD: Loonie declines by hawkish fed expectations

MXN: Peso losing position over dollar strength

MXN: Peso losing position over dollar strength

CNY: Yuan gains on corporate demand

CNY: Yuan gains on corporate demand

BRL: Real sliding down amid high inflation caution

BRL: Real sliding down amid high inflation caution

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