Daily Market Pulse

Dollar low amid treasury yield awaits data


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, endured 0.06% losses on Tuesday's close, taking a breather after reaching a peak in the year 2021. It continues to navigate around yesterday's top region with tepid losses/gains on Wednesday's opening. The recent pullback comes after the retreating of U.S. yields. On the other hand, the dollar is gaining strength as a response to Powell's second term nomination and prospects of continuity in monetary policy, as well as an increase in the likelihood of a sooner than anticipated rate hike by the Fed. In the same line, Atlanta Fed’s chair R. Bostic advocated for a faster pace of tapering on Tuesday, which further propels expectations for an earlier rate hike. Market participants will now keep an eye for the PCE inflation report, which is likely to have an impact on April 2022 Fed rate hike bets, yields, and FOMC minutes, which is anticipated not to provide any surprises. The S&P 500 and Dow Jones index printed modest gains on Tuesday's closing. 


The Euro recovered 0.10% against the greenback on Tuesday's closing, followed by it losing its grip during the early hours of Wednesday, regaining the downside by clinching near the yearly low levels. The uptick was owed to more than expected flash PMI data in the Euro area. The better note in the greenback, triggered by Fed chair nominations and high U.S. yields, keeps the currency under pressure against its American counterpart. Additionally, the Fed-ECB policy divergence adds further downside pressure to the Euro. Market participants are awaiting the release of German business climate tracker data by IFO survey, while more focus is on the release of PCE inflation report, weekly Jobless claims, and minutes of FOMC meeting data later on in the day. The data print release by IFO and U.S. dockets will provide fresh impetus to the currency pair later today. Olaf Scholz is set to become the next German chancellor to succeed Angela Markel after two months of intense negotiations. 


The Sterling retreated 0.14% against the greenback during Tuesday’s closing session and continued sliding downside upon entering Wednesday's European opening session. Sterling plays negative for the fourth consecutive day, erasing off today's rebound from the yearly bottom in the Asian session. The cable remains pressurized amid Brexit concerns and a light calendar for the UK. However, the Sterling gained strength amid stronger than expected PMI data release, favoring odds for the Bank of England’s rate hike. Although, it is expected that the Fed hawks have an upper hand, keeping the pound subdued. European Commission Brexit negotiator, Maroš Šefčovič, disappointedly mentioned that the UK had pushed the Brexit talks to the next year. He had hoped to make a progressive decision on the medicine trade between Great Britain and Northern Ireland, providing a catalyst for further talks. Given the bears holding the cable, the strong blow is required by Brexit headlines amid the lack of input from the economic calendar to provide further direction for Sterling.


The Japanese Yen suffered a 0.23% loss on Tuesday’s closing, followed by a slight gain during Wednesday's opening session. The Yen covered ground on the basis of news that Japan will issue fresh bonds worth JPY 22 trillion for the fiscal year to fund the stimulus. The Yen is anticipated to gain minor traction amid these headlines, slipping to four-year lows against the greenback. The uptick was also sponsored by retreating U.S. yields, keeping a cap on dollar advance. Market participants are focused on U.S. data flow and the Fed’s release, which will provide fresh impetus to the currency pair. 


The Loonie gained 0.24% against the greenback on the closing of the last day, followed by it extending its modest gains on early Wednesday. The U.S. dollar managed to gain some traction in the early trading hours of Wednesday. However, it struggled to capitalize and surrendered the modest gains against the Loonie. Positive oil prices underpin yesterday’s gains for the commodity-linked Loonie. In the same line, the retreating U.S. Treasury yields acted as a tailwind for the Canadian currency, providing further upbeat traction. That said, early rate hike prospects by Fed amid nominations of Powell keep a lid on the downside for the greenback. Market participants are keeping an eye on the U.S. docket data release of prelim core PCE price index and U.S. Q3 GDP. This print, along with the FOMC meeting minutes, will provide momentum for dollar dynamics, and in turn, a fresh impetus for the currency pair.


The Mexican Peso suffered a 1.05% downside against the U.S. dollar on Tuesday's closing. The dollar rose against the Peso for the fourth consecutive day, showing the worst downside on Tuesday for Peso. The rally was triggered by a strong dollar across the board and a cautious tone across the financial markets. In the meanwhile, sharp devaluation of the Turkish Lira added further gains for the greenback against the Peso. It is expected that the U.S. dollar, strengthened by high U.S. Treasury yields and hawkish fed mood, will post the third-highest daily close in one year.


The Chinese Yen suffered losses of 0.11% against its counterpart dollar at the closing of Tuesday’s session. The Yuan continues to trade sideways against the greenback amid expectations of easing monetary policy. The October data, in combination with signals from the central bank’s Q3 Monetary Policy Report, suggests that the bank will reduce its required reserve ratio (RRR) by 50 bps in the coming months. Growth and Labor indicators underpin a hawkish bias, although a fragile real estate market, energy challenges, and financial stability threats back up the case for easing financial conditions. 


The Brazilian Real gained 0.1% for the second consecutive session against the greenback on Tuesday’s closing. The strength of the dollar in the market and uncertainties in the domestic field inhibit more expressive gains. In addition, the Turkish Lira depreciating substantially lends a negative tone to emerging currencies. President Jair Bolsonaro will join the Liberal Party (PL) on November 30th in a ceremony in Brasilia, according to the official statement from the party. The president's affiliation was expected to occur this Monday, however, political disagreements between Bolsonaro and the President of PL, Valdemar Costa Neto, led to the postponement of the ceremony. Meanwhile, the PEC of Precatórios will be read and presented at the Commission for the Constitution of Justice (CCJ) this Wednesday. However, the vote is not expected to take place today. According to Fernando Bezerra Coelho, rapporteur for the bill in the Senate, the vote could take place on the 30th of this month, already accounting for the delays. Meanwhile, Bolsonaro continues to pressure the senators for the first payment of Auxílio Brasil, national aid program, which should take place before Christmas.


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