Daily Market Pulse

Dollar starts on the right foot

USD

The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed 0.17% lower on Friday. However, it regained its momentum with modest gains during Monday morning. The yield on the benchmark 10-year U.S. Treasury note dropped dramatically in the run-up to the last weekend, making it more difficult for the U.S. dollar to make ground against its competitors. Meanwhile, traders expected fresh signals of policy direction from this week's Federal Reserve meeting. The Federal Reserve is scheduled to end its two-day meeting on Wednesday, and although no rate change is anticipated, there have been growing expectations for the central bank to accelerate its tightening plans in order to contain stubbornly high inflation. This hawkish tone maintains a solid grip on the U.S. dollar at the start of the week. Moving ahead, the January Markit Manufacturing PMI, Service PMI, PMI composite, and Chicago Fed National Activity Index will be featured in today's North American Session to provide fresh impetus to the dollar index. 

  • Monday 01/24/2022 - Chicago Fed National Activity Index (Dec) ¦ Markit Services PMI (Jan) 
  • Tuesday 01/25/2022 - Housing Price Index (Nov) ) ¦ Consumer Confidence (Jan) 
  • Wednesday 01/26/2022 - New Home Sales (Dec) ¦ Fed Interest Rate Decision 
  • Thursday 01/27/2022 - Durable Goods Orders (Dec) ¦ Core Personal Consumption Expenditures (Q4) ¦ Gross Domestic Product Annualized (Q4)
  • Friday 01/28/2022 - Core Personal Consumption Expenditures - Price Index (MoM) (Dec) ¦ Personal Spending (Dec) ¦ Personal Income (Dec) ¦ Michigan Consumer Sentiment Index (Jan) 

EUR

The Euro closed 0.28% higher on Friday before posting minor daily losses on Monday morning. The common currency strengthened after the European Central Bank's (ECB) Meeting Accounts meeting following ECB’s President Christine Lagarde stating on Friday that although geopolitical and meteorological reasons are pushing up energy costs, the ECB is not witnessing wage rises. Additionally, Lagarde said that demand in Europe is not high, and as a consequence, the Eurozone is unlikely to have the same level of inflation as the United States. On the other side, the hawkish tone surrounding the U.S. dollar ahead of the Fed's meeting maintains pressure on the Euro. Meanwhile, the IHS Markit Eurozone Composite PMI fell to 52.4 in January 2022, from 53.3 the previous month, marking the second consecutive month of slow business activity. This was slightly below market forecasts of 52.6. The service sector has been impacted by fresh Covid-19 limitations, but the manufacturing PMI has increased as a result of supply chain delays being alleviated. Moving on, the data release from the U.S. docket will influence Euro prices further. 

  • Monday 01/24/2022 - Markit Manufacturing PMI (Jan) ¦ Markit PMI Composite (Jan) ¦ Markit Services PMI (Jan) 
  • Friday 01/28/2022 - Business Climate (Jan) ¦ Consumer Confidence (Jan)

GBP

The Pound Sterling closed 0.35% lower on Friday before continuing its downtrend modestly on Monday. The British Pound continued its current decline from a two-month peak and saw some selling for the third consecutive day. The currency continues to be undermined by mounting calls for Prime Minister Boris Johnson's resignation, after a series of lockdown parties in Downing Street. Additionally, the flash version of the UK PMIs fell short of market forecasts, indicating that growth slowed significantly in January in both the manufacturing and services sectors, as it stood at 56.9 and 53.3, against the expectations of 57.9 and 55 respectively. Meanwhile, rising expectations on the Bank of England’s rate hikes restrained traders from making extreme negative bets on the Sterling. On the other hand, a new leg down in U.S. Treasury bond yields helped in limiting the British Pound's losses. Moving forward, market investors are now anticipating the publication of the flash US PMI numbers later this morning to provide fresh impetus to Sterling.

  • Monday 01/24/2022 - Markit Manufacturing PMI (Jan) ¦ Markit Services PMI (Jan) 

JPY

The Japanese Yen closed 0.38% higher on Friday and continued its pace during Monday morning. The Yen strengthened against the U.S. dollar this morning and sustained gains from the previous week, bolstered by inflation fears and waning risk appetite. Investors fled riskier assets in favor of the safe-haven Yen as fresh worries of rising inflation, policy uncertainty, and heightened geopolitical tensions arose. Meanwhile, the Jibun Bank Japan Composite PMI fell to 48.8 in January 2022 from 52.5 in December. This was the first contraction in the private sector since September 2021 as the Covid-19 cases caused by the Omicron strain increased dramatically. Elsewhere, the Nikkei 225 Index gained 0.24%, while the wider Topix Index gained 0.14% on Monday, as advances in financial, retail, and select heavyweights outweighed declines in the technology sectors.

  • Monday 01/24/2022 - Jibun Bank Manufacturing PMI (Jan) 
  • Thursday 01/27/2022 - Tokyo Consumer Price Index (Jan) ¦ Retail Trade (Dec) 

CAD

The Loonie closed 0.62% lower against the greenback on Friday before extending its losses on Monday morning. A couple of factors worked against the Loonie. The currency saw some selling on Monday, amid the U.S. dollar's minor rise. Additionally, the likelihood of the Fed tightening policy quicker, along with escalating geopolitical tensions, boosted demand for the U.S. dollar and worked negatively for the Loonie. Meanwhile, crude oil prices were strongly supported by concerns of supply disruptions as tensions in Eastern Europe and the Middle East continue to escalate. Apart from that, predictions that the Bank of Canada (BoC) may hike rates as soon as this week bolstered the commodity-linked currency. This, in turn, limited the Loonie's losses. Additionally, investors may want to remain on the sidelines ahead of the important central bank event — which is the Bank of Canada’s policy announcement on Wednesday. Looking forward, traders will use the publication of the flash U.S. PMI prints and the crude oil prices dynamics to influence Loonie prices further. 

  • Wednesday 01/26/2022 - BoC Interest Rate Decision ¦ Bank of Canada Monetary Policy Report 

MXN

The Mexican Peso finished 0.31% higher on Friday before losing its momentum on Monday morning. It's worth noting that this is the first week since November that the Peso has lost territory versus the dollar, after seven straight weeks of strengthening. The U.S. dollar strengthened on anticipation that the Federal Reserve (Fed) will increase interest rates four or more times this year, and on expectations that it would begin shrinking its balance sheet in mid-2022. Meanwhile, the Peso is supported by last week's Mexican labor market data. Mexican unemployment fell to 3.5% in December 2021, down from 3.8% in December 2020. It was the lowest rate of unemployment since the pandemic began in March 2020, as employment climbed by 4.3 million people to 56.9 million, while the unemployed stayed at 2.1 million. Moving forward, half-month inflation results for January and Trade balance figures for December will be featured today. This, along with U.S. data release, will provide traders with short-term trading opportunities around the Peso. 

  • Monday 01/24/2022 - 1st half-month Inflation (Jan) ¦ Trade Balance, USD (Dec)
  • Wednesday 01/26/2022 - Retail Sales (Nov) 

CNY

The Chinese Yuan closed 0.10% higher on Friday. The Yuan strengthened to a more than three and a half year high against the U.S. dollar on Monday, boosted by higher central bank fixings and robust corporate demand ahead of the Lunar New Year vacation. Before the market started, the People's Bank of China (PBoC) fixed the midpoint higher against the dollar, the firmest level since May 2018. Meanwhile, the Yuan continued to strengthen as the Chinese central bank reduced many key short- and medium-term interest rates to spur development. China's policy actions stood in stark contrast to those of other developed countries, which are on course to normalise monetary policy this year. Analysts anticipate the PBOC to accelerate its easing measures in the first half of the year, with more rate cuts and a decrease in the bank's reserve requirement ratio in the first quarter.

  • No releases this week 

BRL

The Brazilian Real closed 0.27% lower against the greenback on Friday. This comes as the U.S. dollar strengthened against the backdrop of a bearish trend in global financial markets, with investors returning to Brazil in search of bargains. Domestically, President Jair Bolsonaro's deadline to approve the 2022 Budget expires on Friday. There are concerns, among other things, surrounding the readjustments to server capacity, after the president's assurance that increases would be reserved for police officers alone. Meanwhile, last year's implementation of the PEC dos Precatórios, which altered the expenditure limit regulation to allow for more government spending, shook investors' confidence in the health of public finances. Elsewhere, international hopes that the U.S. Federal Reserve would begin raising rates at the next meeting of the Federal Open Market Committee waned as the development of the coronavirus' omicron strain raised worries about a weakening economy.

  • Monday 01/24/2922 - BCB Focus Market Readout 
  • Wednesday 01/26/2022 - Current Account (Dec)
  • Thursday 01/27/2022 - BCB National Monetary Council meeting 
  • Friday 01/28/2022 - Inflation Index/IGP-M (Jan) ¦ Unemployment Rate (Nov)
 

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