Daily Market Pulse

Dollar surges amid Powell’s second term nomination

6 minute read


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, edged 0.54% higher on the closing of Monday, followed by trading at minor losses and gains across the highest level since July 2020 during the Asian trading session. The two-day consecutive uptrend of the greenback is owed to rising U.S. bond Treasury yields and Joe Biden’s decision to nominate Jerome Powell for the second term as the chair of the Federal Reserve. Reflecting on the Fed’s hawkish policy outlook, the U.S. 10yr bond yields rose by 5% at 1.63% on Monday. The S&P 500 index closed in the negative area while the Dow Jones industrial average managed to print modest gains on Monday’s closing. U.S. stock futures are edging lower during the European trading opening session, indicating that the market can turn cautious during the second half of the day. Investors are looking forward to preliminary November market manufacturing and service PMI survey data to further place their bets on the greenback. 


The Euro suffered 0.47% losses against the greenback during the last day of closing, sliding down to the weakest level in more than a year due to rising U.S. Treasury yields, supporting the dollar. The Euro gained modest upbeat traction on Tuesday morning, bolstered by more than expected German and Eurozone PMI data. The Eurozone Manufacturing Purchasing Managers Index arrived at 58.6 against expectations of 57.3. This, along with the retreating dollar, provided strength to the Euro to hold the higher ground. Economists believe that while expansions in business activity in November defies expectations of the slowdown, rising Covid-19 cases in the Eurozone will likely have a severe impact on business activity in the fourth quarter, possibly slowing down the business growth.


The Sterling retreated 0.40% against the greenback during Monday’s closing session, but it started looking southwards by the early hours of Tuesday. The downside is triggered by the Fed’s tapering talks and looming Brexit concerns. The sentiment around Sterling is weakened by the U.S. dollar's broad strength amid increasing odds of faster Fed tapering and Jerome’s second term nomination as Fed chair. Economists anticipate that the UK won’t trigger Article 16 until December, suggesting that Brexit talks will continue over the next few weeks. Investors are waiting ahead of UK preliminary market PMI data to provide some limelight for Sterling while the dollar and yields continue to play out. 


The Japanese Yen suffered a 0.78% loss on Monday’s closing followed by a slide during the European trading opening session. The currency pair is trading at multi-year high levels, bolstered by yesterday’s positive move from the dollar and today’s upbeat traction. Jerome Powell’s nomination for the second term as Fed chair reinforces speculation of early rate hikes, which continues to underpin the greenback against the Yen. Additionally, the disparity in the Japanese and U.S. Treasury bond yields acts as a headwind for the Yen. The cautious market mood due to Covid cases holds investors from placing fresh bullish bets, favoring the Japanese Yen. Market participants look forward to the release of flash PMI prints for November. This, along with U.S. Treasury yields dynamics will provide fresh impetus for the currency pair. 


The Loonie endured 0.47% losses against the greenback on the closing of the last day, followed by extending its downtrend move in the early hours of the European trading session. The Loonie currency pair cheered to fresh highs since October and moved upwards due to rising U.S. Treasury yields. WTI crude oil prices dropped by 0.75% for the day, weakening Canada's key export item and the Loonie. Although stronger yields and downbeat prices hold the dollar high, preliminary readings of November’s U.S. PMI data and comments from Paul Beaudry, Bank of Canada's deputy governor, will be important to watch for fresh impulse across the currency pair. 


The Mexican Peso suffered 0.83% against the U.S. dollar on the last day of closing, followed by extending its downward movement during the early hours of the second day of the new week. Increasingly, bets are placed on the weakening of the Peso against the greenback amid growing concerns of the Federal reserve’s rate hike to combat inflation. Economists believe that domestic factors and inflation sensitivity are holding back the Peso to rise against the dollar. Although Mexico’s central bank has raised the basis points by 200 to the current level of 5.0%, the gloomy macroeconomic outlook has prompted an exodus of foreign investors from the sovereign debt market. The Mexican currency has depreciated 4.7% against the dollar year to date.


The Chinese Yuan showed a 0.03% gain against its North American counterpart on Monday’s closing following a slight setback in the early hours of Tuesday. China’s foreign exchange panel urges banks to cap speculation as the Yuan surges. The banks are advised to better track their proprietary trading desks that tend to make speculative bets in one way moves on the currency as well as improve risk management. Economists believe that this step is taken in a time of slow growth and that short-term export strength is to keep the currency growth in the year ongoing.


The Real managed to recover some ground, closing at a slight increase of 0.25% compared to the beginning of the week. The political climate in the Senate has not been favorable to the government on important issues, with the suspension of several issues, such as the privatization of the Correios (postal service), André Mendonça's hearing for the Supreme Court, and the Tax Reform of the IRPF. The statement about the increase for public servants did not go down well among senators and did not contribute to improving the situation in the Senate. Overall, the economic trend remains negative. The review of economic data by the Secretariat for Economic Policy shows that the reality is harsh, especially in relation to inflation. According to the Macro fiscal Bulletin of the SPE 2021, inflation for this year rose from 7.90% to 9.70%, and for next year, from 3.75% to 4.70%. The new inflationary estimates converge with the BCB Focus Market Readout. Today, a public hearing is scheduled at the Senate Economic Affairs Committee with the participation of the executive secretaries of Economy and Mines and Energy, in addition to the president of Petrobras. The theme will be focused on the successive increases in fuel.


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