Daily Market Pulse

Dollar extends losses as optimist vibes linger

6 minute read


The U.S. dollar index, which values the greenback against a basket of six major currencies, continued to retrace another 0.12% during yesterday’s trading session. This comes amidst positive risk-on vibes derived from progress on infrastructure spending bills, Durable goods Orders, and Covid Headlines. The greenback remained subdued given its safe-haven appeal and Fed tapering expectations fading away, as market participants are expecting Powell to refrain from tapering during his speech on Friday at the Jackson Hole Symposium. The dovish stance from policymakers has weighed on Treasury Yields, as extending stimulus suggests that it is unlikely to result in an immediate rate hike, to the point where even traditional hawks in the committee have backed postponing tapering amid the latest backlash of the virus. However, despite the increase in COVID-19 cases surpassing 150k daily cases, the spread of the Delta strain seems to have slowed down while vaccination rollout has picked up. Stats on jabs deployment showed that 860k received a vaccine every day, considerably higher than 500k daily vaccinations back in the summer. Moreover, the dollar opened Wednesday on the front foot amid profit-taking from the previous bearish trend on the greenback ahead of Durable Good orders, which could represent risk on the upside. The U.S. Census Bureau is due to release durable good orders figures later today, setting expectations at a contraction of 0.3% in July, dropping from 0.9% from June figures. However, indicators of Durable goods, excluding Defense and Transportation, are expected to grow 0.4% and 0.5% respectively during the month of July. Nevertheless, the House of Representatives has advanced the Democrat-backed USD 3.5 trillion spending bill, and the bill will now progress to the Senate.      


The EUR extended gains against the greenback, edging 0.12% higher during yesterday's trading session, and currently sustaining levels during the early hours of today. The broader optimism pushed EUR to one-week highs as the greenback remains under pressure amid risk enhanced appetite which keeps the EUR snapping 3 consecutive days recording gains after hitting a deep multi-month low. Moreover, German IFO data released mixed results, with Expectations and Business Climate missing expectations, although the “Current Assessment” figures surprised on the upside, suggesting constructive optimism in the German morale. Later today, we expect a speech from European Central Bank official De Guindos, which could trigger certain volatility in the session. 


The British Pound advanced 0.12% on Tuesday’s session amid restoring investor sentiment in global financial markets, which keeps the dollar on the back foot. Despite the broader risk-on mood, Sterling failed to capitalize on further gains against the greenback as Covid cases continued to be a cause for concern, capping the potential for Sterling amid the recent uptick in daily cases reaching 30k. Moreover, the CBI distributive trades survey’s retail forecast in the U.K. rose +60 in August, well above expectations set at 20. However, market participants remain cautious ahead of important U.S. Durable Good Orders data which could surprise the upside, although expectations around tapering suggest that policymakers will refrain from tapering the U.S. stimulus program on Friday’s speech from Fed Chair, Jerome Powell.     


The Japanese Yen remains neutral against the dollar, failing to break through the tight range it had been oscillating during the past 5 trading sessions. Mixed drivers among risk-on sentiment, compromised fundamentals, and renewed efforts from government officials to deploy Covid vaccines faster keep the pair on the crossroads with no clear direction. Risk appetite in global markets shows signs of recovery, which is a potential headwind for both the JPY and the USD relative to their safe-haven perception among market participants. However, latent risks are still present, and the Jackson Hole Symposium could put a halt to equity markets, potentially underpinning the Yen in such cases. 


The Loonie edged 0.45% higher against the greenback, amid risky assets benefitting from investor inflows and a broader dollar weakness sponsored by the cheerful mood. The West Texas Intermediate (WTI) sustained momentum during yesterday’s trading session and rallied over 3%, providing a boost to the commodity-linked currency. This week, crude oil prices bounced back over 9% after touching 4-month lows on Friday’s close. If the cheerful mood sustains, we could expect further recovery from commodities underpinning the Loonie and the dollar to remain subdued, extending losses across the board. Today, there won’t be any relevant data releases featured in the Canadian economic calendar, although market participants will stay tuned to U.S. Durable Good Orders.  


The Mexican Peso capitalized 0.52% against the greenback amid Crude oil prices underpinning the Peso and a broader weakness of the dollar amid the broader risk-on mood which kept the dollar and treasury yields subdued. Moreover, the International credit rating agency Moody’s released a report flagging the increased “financial pressure” on Mexican states that are rated Baa1 (moderate credit risk) with a negative outlook, due to expenses and over costs related to the Covid-19 pandemic. The report highlights the increased financial pressure at a time when many local and regional governments were also facing declining or stagnant revenues. The report notes that state public health expenses, combined with the extension of subsidies and tax benefits to stimulate regional economies, became a key driver in the widening of the fiscal deficit in 2020.   


The Chinese Yuan advanced 0.12% against the dollar as global market jitters ease nurturing investor sentiment weighing on the dollar. The Chinese overnight interbank rate eased from a two-month high after the PBoC injected short-term cash into the system. Policymakers pumped CNY 50 billion/USD 7.7 billion of liquidity into the system in an effort to meet a higher cash demand at the end of the month and did not change the liquidity neutral stance from the PBoC. Worth noting is that Government bonds gained after the liquidity injection, while the FX remained relatively unchanged. 


The Brazilian Real rallied 2.15%, making it the best performing currency against the dollar. The BRL´s leap occurred on the back of Authur Lira´s remarks, where the Lower House President reinforced his commitment to control the country’s fiscal accounts. The spokesman used a reconciliatory tone, highlighting that the spending cap won’t be breached and that he will establish talks with supreme court justice, President Fux, to mediate the issue involving payments the court ordered to happen in 2022. Moreover, the Supreme Court Magistrate. Alexandre De Moraes dismissed charges filed by two Senators against attorney general Augusto Aras for failing to perform his duties by omitting to investigate President Bolsonaro.  


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