The Federal Open Market Committee (FOMC) minutes were the main event driving the greenback's performance last week. Committee members hinted that if the pick-up in inflation and domestic demand continues, the Fed will taper the bond purchasing program triggering a sell-off of US treasuries. The USD started last week following a downtrend that lost momentum after the hawkish FOMC minutes midweek. The market diluted the effect of the minutes closing -0.3% lower on Friday than its opening on Monday. This week we will keep a very close eye on US GDP figures which will be released on Thursday.
- On Monday (05/24): Chicago Fed National Activity Index (Apr) | Fed’s Brainard Speech
- On Tuesday (05/25): Housing Price Index (MoM)(Mar) | Consumer Confidence (May)
- On Wednesday (05/26): Fed’s Quarles speech
- On Thursday (05/27): Durable Goods Orders (Apr) | Nondefense Capital Goods Orders ex Aircraft (Apr) | Gross Domestic Product Annualized (Q1) | Treasury Secretary Yellen speech
- On Friday (05/28): Personal Income (Apr) | Personal Spending (Apr)
The EUR had a modest week against the USD advancing 0.32%. The E.U. seems to be gaining confidence as the economic data confirm a pick-up in the economy with progress in vaccine rollout and restrictions easing progressively; prospects for the summer are very promising. However, the hawkish FOMC minutes sparked a selloff of the pair, but the market retraced shortly after further PMI data was added to the fundamentals of EUR. The economic calendar looks light this week, with consumer sentiment being the most relevant release on Friday.
- On Friday (05/28): Consumer Confidence (May) | Business Climate (May)
Sterling had a positive week against the greenback, registering a 0.55% rally by Friday close. The bullish momentum was fueled by the recent ease of restrictions followed by solid unemployment figures at 4.8% and inflation doubling in April. The Bank of England (BoE) expects inflation to spike to 2.5% by the end of the year, but they are confident that it will converge back to the 2% target in the longer term. On the Brexit front, Northern Ireland continues muddying the waters with France as fisheries rights haven’t been clearly defined in the current agreements. Surprisingly enough these tensions haven’t affected the valuation of Sterling but we will keep an eye open to any potential developments that might spark volatility. On the other hand though, this week started strong with positive news regarding the COVID vaccine rollout. The U.K. government has announced that they have passed the 60 million jabs milestone, improving the prospect of further appreciation of the pound.
- On Tuesday (05/25): BoE’s Tenreyro speech
Japanese Yen earned 0.24% against the greenback during the week. The macroeconomic data failed to impress as GDP figures registered -5.1% contraction vs. -4.6% expected year-over-year. However, the pair keeps pushing lower as the American currency depreciates against most of its pairs. We will kick off the week with Bank of Japan's (BoJ) Governor Kuroda speech, which we expect to provide insight into the bank's position regarding poor data from the previous week. The market will then turn its focus to Friday’s inflation and unemployment results.
- On Monday (05/24): BoJ Governor Kudora speech
- On Wednesday (05/26): Leading Economic Index (Mar)
- On Friday (05/28): Tokyo CPI Ex fresh food | Jobs / Applicants Ratio | Tokyo Consumer Price Index | Unemployment Rate.
USD/CAD continued to push lower during the week registering new year-to-date lows, last seen in 2017. The Loonie appreciation has been driven by strong fundamentals, solid commodity prices, a hawkish stance from the Bank of Canada (BoC), and inflation of 3.4% (fastest since 2011). Despite the promising results, the Canadian economy has accumulated a significant amount of debt. The BoC has expressed its concern as the risks for financial instability accentuate. Starting the week with a bank holiday, Victoria Day, we only expect BoC Lane’s speech on Wednesday to have any impact on the currency.
- On Monday (05/24): Bank Holiday - Victoria Day
- On Wednesday (05/26: BoC Lane’s speech
The political risk was in the spotlight last week with remarks from Mexico’s President Andrés Manuel López Obrador fuelling speculation that his government might use its congressional majority to push through legislation to gain access to the Central Bank’s international reserves, which could undermine the autonomy of Mexico’s Central Bank (Banxico) and weigh on the MXN. The upcoming week will bring important economic releases, starting with inflation numbers for the first half of May on Monday, which might put additional pressure on Banxico to start withdrawing stimulus. April’s trade balance and Q1 current account data will be posted on Tuesday. Banxico minutes will be released on Thursday and will be watched closely for signs of a more hawkish tone.
- On Monday (05/24):1st Half-Month CPI (May)
- On Tuesday (05/25): Trade Balance (Apr) | Current Account (USD) (Q1)
- On Wednesday (05/26): Economic Activity (Mar) | GDP (Q1)
- On Thursday (05/27): Unemployment Rate (Apr) | Banxico Meeting Minutes
- On Friday (05/28): Fiscal Balance (Apr)
The CNY edged marginally higher (0.12%) putting further pressure on the USD. However, the renminbi’s momentum slowed down following a week of disappointing data especially on retail sales and industrial production. However, the People's Central Bank of China (PBoC) said that they expect monetary policy to remain stable but there is a clear interest in allowing the onshore Yuan price to be determined by market participants, said the Chairman. We don’t expect any relevant economic figures to be released this week, but it will be important to witness whether the CNY appreciation will continue or if the rally will fade.
Last week the Brazilian Real depreciated 1.7% against the greenback, with market players pricing in a stronger USD, as well as following local political movements with an eye on the 2022 election. This week kicks off with the Provisional Measure on the privatization of Eletrobas, which is a major Brazilian electric utility company, under discussion in the Lower House on Monday. Meanwhile, the corruption suspicions involving the Minister of the Environment, Ricardo Salles, must be closely monitored. Some government supporters are beginning to call for the minister’s dismissal, as fighting corruption was one of President Jair Bolsonaro’s main election agendas. It is also a busy week on the economic calendar. We will receive a fresh inflation reading for May on Tuesday. Given the rise in commodity prices, the devalued BRL, and the increase in global trade, the figures for April's current account on Wednesday will draw attention. Key figures coming up:
- On Monday (05/24): BCB Focus Market Readout
- On Tuesday (05/25): FGV Consumer confidence (May) | Mid-Month CPI (IPCA-15) (May) | CAGED Net Payroll Jobs
- On Wednesday (05/26): Current Account (USD) (Apr) | Foreign direct investment (USD) (Apr)
- On Thursday (05/27): Unemployment Rate
- On Friday (05/28): IGP-M Inflation Index (May) | Bank lending (Apr)