Daily Market Pulse

Dollar takes a breather

7 minute read


For the majority of the day on Thursday, safe-haven flows dominated financial markets, and the U.S. Dollar Index (DXY) climbed to its highest level since June 2020, closing 0.89% higher yesterday before losing steam on Friday morning. Markets are pretty quiet early Friday morning, and the dollar continues its corrective fall as investors brace themselves for another volatile day. Following Russia's decision to strike Ukraine, Western nations imposed a slew of sanctions on Thursday. The United States, the United Kingdom, and the European Union avoided shutting down Russia's SWIFT systems. They also ignored the option of the energy industry, which alleviated concerns about the damaging impact of these sanctions. Elsewhere, equities are rising, crude oil prices are rising, and U.S. equity futures are falling as the Ukraine-Russia conflict clouded the market picture. Moving forward, traders will be looking at the Personal Consumption Expenditure Prices Index, which is predicted to rise by 5.5% year on year, but the main attention will be on geopolitical headlines.


The Euro closed 1.02% lower yesterday before regaining its momentum this morning.  The currency fell to its lowest level this month, as investors sought safe havens amid growing fears of a European conflict. President Putin declared an attack on Ukraine and the Russian military launched missiles against a number of locations. Additionally, European natural gas prices have come to a standstill after a record-breaking surge as Russian flows to the continent increased and U.S. sanctions against Russia excluded the energy sector. Meanwhile, traders are looking for additional hints on the European Central Bank's monetary policy as price pressures in the Eurozone continue to rise but the odds are growing that the central bank will take a more cautious approach due to the risks posed by the Ukraine conflict. In other news, the Stoxx Europe 600 Index rose 1%, bouncing back from a technical fall on Thursday after Moscow-led forces triggered the worst security crisis since World War II.


The Pound Sterling sank to its lowest level since late December, closing at 1.21% lower yesterday against the greenback, but it was able to recoup some of its losses this morning. This was owing to traders fleeing to safe havens in the midst of the Ukraine-Russia crisis. Furthermore, investors digested fresh sanctions imposed by Western countries on the Russian economy, which did not target Russia's oil exports and did not prevent Russia from accessing the Swift global payment network. Meanwhile, the GfK Consumer Confidence indicator in the United Kingdom fell to its lowest level in 13 months in February 2022, at -26. Fears about the impact of price increases ranging from food to fuel and utilities, as well as increased taxation and interest rate hikes, have combined to create a perfect storm of concerns that has damaged consumer confidence. In other news, the FTSE 100 recovered 1.5%  on Friday, following global positive indications and rebounding after a sell-off the day before due to the Ukraine conflict.


The Japanese Yen closed 0.45% lower in the previous session against the greenback. On Friday, the Japanese Yen held its drop against the dollar as safe-haven buying for the currency eased while traders assessed geopolitical developments. Following Russia's invasion of Ukraine, the Yen surged against major currencies on Thursday. However, the currency reversed course after U.S. President Joe Biden announced further penalties against Russia, but made it plain that Western powers would not sacrifice their own economy to punish Moscow for invading Ukraine. Meanwhile, Japan's core inflation rate fell to 0.2% in January, missing expectations and maintaining considerably below the central bank's target. Additionally, foreign investors continued to be net sellers of Japanese shares for the fourth week in a row as investors battle with growing tensions in Ukraine and predictions of higher global interest rates.


The Loonie closed 0.64% higher in the previous session before regaining its momentum this morning. The Canadian dollar fell to its lowest level in two months as investors fled to safer havens following Russia's attack on Ukraine, which could trigger a European war. Nevertheless, increased oil prices capped much of the bearish momentum with WTI crude oil, a major Canadian export, breaking beyond the $100 barrier. Furthermore, Canada is imposing new sanctions on Russia and withdrawing export permits worth hundreds of millions of dollars as Western nations intensify their concerted retribution against President Vladimir Putin's full-scale invasion of Ukraine. In other news, the S&P/TSX composite index on the Toronto Stock Exchange closed at a minimally changed level on Thursday after declining for five consecutive sessions as traders neglected Russia's war on Ukraine.


The Mexican Peso plunged 1.54% yesterday before recovering its losses partially on Friday morning. After Russian President Vladimir Putin launched an invasion of Ukraine, traders poured into safe-haven currencies, pushing the Mexican peso down from a four-month high. Furthermore, annual inflation in Mexico increased faster than predicted in the first half of February, placing additional pressure on the central bank to keep raising interest rates despite evidence of a stalled economic recovery. Consumer prices increased 7.22% in the first two weeks of the month compared to the same period last year. As policymakers worry about the country's high and persistent inflation rate, one member of Mexico's central bank board pondered voting for the country's largest-ever rate increase this month. Initially, the board members suggested that a three-quarters-point hike in the key rate, the largest since 2008,  would be acceptable when the bank implemented its current inflation-targeting mechanism. Eventually, the policymakers joined the majority of the board in voting for a half-point increase to 6%.


The Chinese Yuan closed 0.12% lower in the previous session against the greenback. On Friday, the Yuan rose against the U.S. dollar, staying around a four-year high and standing out for its durability against major rivals as global tensions roiled markets. Analysts have speculated that Western sanctions against Moscow may help the Chinese currency in the long run by encouraging Russia to boost its Yuan holdings. Furthermore, the People's Bank of China (PBOC) made the largest weekly cash injection in more than two years this week in order to preserve stable liquidity circumstances as the month comes to a close. The PBOC injected a total of CNY 300 billion in 7-day reverse repos and maintained the rate at 2.1 on February 25th, 2022. In other news, the Shanghai Composite gained 0.63% and the Shenzhen Component climbed 1.21% on Friday, as China's central bank injected more liquidity into the financial system and investors assessed the risks posed by Russia's invasion of Ukraine.


The Brazilian Real closed 1.25% lower in the last session against the greenback. The Brazilian currency fell as investors fled to safer havens in the midst of Ukraine's present turmoil. Still, the Real is close to an 8-month high achieved earlier this week, as higher-than-anticipated inflation bolstered the case for a more hawkish policy stance by the Central Bank of Brazil, which has already warned that it may raise borrowing costs by more than markets expected this year. The annual inflation rate increased to 10.76% in mid-month consumer pricing data, exceeding market estimates and the central bank's objective of 3.5%. Meanwhile, the jobless rate in Brazil fell to 11.1% in the fourth quarter of 2021, a little lower than market expectations of 11.2%. Elsewhere, On Thursday, the main Sao Paulo stock index, the Bovespa, closed marginally lower as investors worried about Russia's invasion of Ukraine. Traders are concerned that the ongoing conflict could intensify inflationary pressures and derail the global economy as the world recovers from the pandemic. 


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