Daily Market Pulse

Dollar under pressure by risk-on sentiments


The U.S. dollar falls early on Friday while markets remain unsettled as the investors examine the recent geopolitical concerns. This comes after the U.S. dollar index ended the previous session with a 0.15% gain, recording gains for its second. The Federal Reserve's staunch hawkish attitude was offset by rising global risk-on sentiment. This week, riskier assets gained as investors appeared to brush off geopolitical and economic risks, reducing demand for the safe-haven dollar. In other news, risk flows continued to dominate financial markets, as the S&P 500 climbed more than 1%. The U.S. stock index futures are up 0.2% heading into the European day. Moving forward, the U.S. economic calendar will have February Pending Home Sales and the final Consumer Sentiment Index for March from the University of Michigan.


The Euro closed 0.06% lower on Thursday before regaining its momentum this morning. The common currency increases as market sentiment improve and the E.U. agrees to minimize its reliance on Russian energy products. Having said that, the United States and the European Union signed an agreement to increase the supply of liquefied natural gas to European countries by at least 15 billion cubic meters by the end of 2022. The goal is to collaborate with foreign partners to wean the continent off Russian petroleum supplies. According to the deal, EU member states would cooperate to ensure demand for 50 billion cubic meters of liquefied natural gas from the United States until at least 2030. Meanwhile, on the data front,  the S&P Global Euro Area Manufacturing PMI dipped to 57 in March 2022 from 58.2 in February, slightly above market projections of 56. In addition, the S&P Global Eurozone Composite PMI declined to 54.5 in March 2022 from 55.5 in February, contrasting to a market consensus of 53.9, as the economic impact of the Ukraine war outweighed the higher demand for services as COVID-19 limitations were relaxed. In other news, the Stoxx Europe 600 saw little movement during the opening of European markets. Later in the session, Eurostat will issue business sentiment statistics for Germany.


The Pound Sterling closed 0.14% lower yesterday and continued its downtrend on Friday morning despite a slightly positive market mood. The Pound sterling began to fall this morning after data released by the UK's Office for National Statistics on Friday indicated that Retail Sales dropped by 0.3% on a monthly basis in February, contrary to the market's forecast of a 0.6% growth. According to economists, consumer spending in the United Kingdom fell back in February as consumers had more possibilities to spend outside of retail once England dropped its Covid-19 control regulations. In other news, the FTSE 100 fell slightly on Friday, but remained close to a near one-month high hit on Tuesday, as traders absorbed an unexpected drop in February retail sales while keeping an eye on the West's reaction to Russia's invasion of Ukraine.


The Japanese Yen plunged 0.99% in the previous session against the greenback. The Yen remained weak against the U.S.  dollar on Friday, lingering near its lowest levels in over six years and poised for its third straight week of severe losses, amid widening divergence between Japan and the United States on the course of monetary policy. This week, Bank of Japan Governor Haruhiko Kuroda reaffirmed the importance of maintaining ultra-easy monetary policy to promote Japan's economic recovery. Kuroda warned that rising consumer prices, fueled by greater energy and food expenses, will have a long-term negative impact on the economy, reducing corporate profits and household real income. His words contrasted sharply with recent comments from Fed officials indicating a willingness to tighten policy more forcefully in order to battle inflation. Higher commodity prices also weighed on the Yen, given Japan's role as a major importer of energy and raw materials, adding to the country's growing trade deficit.


The Loonie closed 0.29% higher in the previous session before losing its steam on Friday morning. The Canadian currency rose against the U.S. dollar, reaching its highest level in two months, helped by rising interest rates, higher oil prices, and stronger risk sentiment even as the Ukraine conflict raged on. Money markets anticipate that Canada's central bank will raise interest rates by roughly 200 basis points this year, following a hike this month for the first time since before the epidemic. Oil, one of Canada's biggest exports, has risen about 20% to $112 per barrel after hitting a three-week low of $93.5 on March 16th. In other news, the S&P/TSX composite index of the Toronto Stock Exchange closed near the flatline on Thursday, as losses in technology and healthcare sectors overshadowed gains in miners fuelled by rising gold prices.


The Mexican Peso spiked 0.66% higher yesterday against the greenback before consolidating its gains on Friday morning. The Mexican Peso rose against the U.S. dollar, approaching its highest level since September 2021, after the central bank raised interest rates for the seventh time in a row to 6.5%, trying to reduce inflationary pressures caused by the Ukraine conflict. The bank now predicts inflation to be 5.5% in the fourth quarter of the year, up from 4% in February, with convergence to the 3% objective predicted only in the first quarter of 2024. According to the most recent data, headline inflation surged to 7.29% from a year ago in the first two weeks of March, while estimates for 2022 and 2023 grew again. In other news, Mexico's major stock index rallied on Tuesday, with the S&P/BMV IPC breaking above the 55,900 mark for the first time, powered by increases in Grupo Aeroportuario del Pacifico, Inbursa, and Industrias CH. Gains came despite the announcement of monetary policy tightening from Mexican policymakers amid looming development in Ukraine.


The Chinese Yuan closed 0.12% higher in the previous session against the greenback. The Yuan weakened against the U.S. dollar on Friday and was expected to fall further this week, as the reimposition of Covid lockdowns and increasing commodity prices pose mounting dangers to China's economic growth. Analysts are growing skeptical that China can meet its 5.5% GDP growth target this year. The likelihood of additional monetary easing, with another reduction in China's reserve requirement ratio predicted in the second quarter, at a time when global central banks are raising interest rates, could also accelerate capital outflows and further weaken the yuan. The People's Bank of China's easing bias contrasted sharply with the Federal Reserve's, with U.S. policymakers showing a willingness to tighten policy more forcefully in order to battle inflation. In other news, China's current account surplus shrank to USD 118.4 billion in the fourth quarter of 2021, down from USD 120.7 billion in the same time the previous year and falling short of a preliminary forecast of USD 119.4 billion.


The Brazilian currency closed 0.13% up yesterday, advancing for the seventh consecutive session and renewing the best level since March 2020. Local asset valuations continue to attract emerging market investors despite the greater global volatility. Although Real ended the day on a positive note, the participants of the market were stunned by the strength of the volatility present in the session.  The six-month implied volatility rose to its highest level in more than a year. Also suggests that hedgers are seeking protection to offset the risk that the presidential election race begins to negatively impact the markets. Meanwhile,  Guedes and Campos set the market on fire, the amplitude observed is also derived from the comments by the Minister of Economy Paulo Guedes and the President of the Central Bank Roberto Campos. While the economic team emphasized that they are working to bring Real's quotation down to fight inflation, Roberto Campos threw a bucket of cold water on the market, saying that the cycle of monetary tightening is coming to an end. The president of Brazil Central Bank (BCB) stressed that a new increase in the Selic rate in June is unlikely, frustrating those who were betting on a Selic rate above 13%.


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