Daily Market Pulse

Dollar rebounds from one month low


Following a one-month low in the previous session and closing 0.25% lower, the U.S. dollar index recovered on Wednesday, taking cues from stabilizing Treasury yields. The dollar has been under pressure in recent weeks, tracking broad drops in Treasury rates amid concerns that aggressive Fed rate hikes could tip the U.S. economy into recession. Moreover, Atlanta Fed President Raphael Bostic warned that aggressive rate hikes may cause "substantial economic upheaval," encouraging his colleagues to "act with caution." Investors are now looking for new signs on the expected path of monetary policy from the minutes of the central bank meeting later today. Analysts speculated that if inflation readings were to show indications of slowing, the Fed could take a break. Meanwhile, stocks gained on Wednesday, but Treasury yields stabilized following a dramatic drop as investors assessed the outlook for Fed monetary tightening


The common currency rallied in yesterday's session to close 0.42% higher before losing its pace this morning as the U.S. dollar index regains its ground. The recent rally in Euro is attributed to the European Central Bank (ECB) policymakers who vowed a 50 bps rate hike. Meanwhile, S&P Global has published its preliminary May PMI estimates. Except for the German indexes, which were slightly better than April's, most European industrial and services PMI came in below market expectations. The EU services PMI fell to 56.3 from 57.7 the previous month, while the manufacturing index fell to 54.4 from 54.9 projected. Elsewhere, Gains in Europe's Stoxx 600 were led by utilities, miners, and energy stocks. 


The British Pound closed 0.44% lower against the greenback before getting steady on Wednesday morning. The British pound fell from a two-week high earlier this week after the latest PMI data indicated the economy slowed considerably in May as inflationary pressures reached historic levels. Furthermore, corporate optimism has fallen to its lowest level in two years, owing to a shortage of competent workers, lower orders, and concerns about the cost of doing business. Meanwhile, the balance of the retail sale in the UK rose to -1 in May 2022 from a 13-month low of -35 in April, exceeding market expectations of -30. According to the reading, retail sales will be broadly flat year on year and would dip slightly next month. Finally, the FTSE 100 rose slightly on Wednesday and is aiming for its highest level in three weeks as traders await the release of U.S. Fed minutes.


The Japanese Yen surged 0.84% in Tuesday's session, although dropped this morning amid broad dollar strength. In the latest data releases, the index of leading economic indicators in Japan was lowered lower to 100.8 in March 2022, compared to preliminary estimates of 101.0 and a month earlier, citing concerns about the pandemic's impact on China and a prolonged Ukraine war. On the other hand, the index of coincident economic indicators, which includes statistics such as factory output, employment, and retail sales, was at 97.5 in March 2022, compared to a flash reading of 97.0 and a final reading of 96.8 a month earlier. This was the highest figure since September 2019, thanks to an improved Covid situation. In other news, the Nikkei 225 Index sank 0.26% on Wednesday, while the wider Topix Index fell 0.09%, extending losses from the previous session and following Wall Street's tech selloff.


The Loonie fell 0.42% in yesterday's session against its U.S. counterpart and extended its losses slightly on Wendnesday's morning ahead of Fed's monetary policy meeting release. According to the most recent data, manufacturing sales in Canada grew 1.6% month over month in April 2022, following a 2.5% growth in March. Higher sales in the petroleum and coal products, motor vehicle, and primary metal industries drove the increase. In other news, the S&P/TSX Composite index closed 0.4% higher on Tuesday, extending gains for the third straight session as investors returned following a long weekend. Moving forward, investors are anticipating further policy tightening cues from the minutes of the Fed's monetary policy. 


The Mexican Peso continued to capitalize on the U.S. dollar's weakness and closed 0.16% higher yesterday before nudging down this morning as the dollar gained its momentum ahead of Fed's key policy meeting. Meanwhile, according to the Finance Ministry, President Andres Manuel Lopez Obrador's price agreement with major Mexican corporations is expected to lower inflation by up to 1.5% points by year's end. The accord comes after inflation reached a two-decade high of 7.72% in early April, posing a growing political dilemma for the administration as Mexicans' purchasing power dwindles. Having said that, many economists feel that decreasing Mexico's sticky inflation rate will take time, and the deal's impact in practice has to be seen.


The Chinese Yuan closed 0.15% higher in Tuesday's session against the greenback. On Wednesday, the Yuan fell against the U.S. dollar as investors feared slowing development in the world's second-largest economy as the country grappled with the spread of Covid situations. While China reported a decline in Covid cases from the previous day, the country's financial capital Shanghai remains largely paralyzed by a city-wide lockdown that is now in its seventh week, while Beijing has increased quarantine efforts. Such restrictions have harmed an already fragile economy, causing foreign investment banks to lower their growth forecasts for China in 2022 and compelling the authorities to implement targeted easing measures and offer additional support.


Yesterday's session was marked by the extremely high volatility for the Brazilian currency which moved almost 2% between the day's high and the low. Ending the day with 0.33% gains, reflecting a mixed abroad environment, while domestically, issues such as the change in the presidency of Petrobras and the last reading of the IPCA-15 gained prominence. Meanwhile, the cost to hedge against a devaluation of the BRL using options remains one of the highest in the world, even with the recovery of the currency after a strong sell-off in April. The first and third months implied volatilities rose in May and hovered around a 16-month high last week, despite the 5.5% rise in the real in this period. Strong hedging demand suggests that traders fear a sudden reversal in dollar inflows that fueled recent gains.


Want the Daily Market Pulse delivered straight to your inbox?

Sign up for a free account

Sign up for a free account

Access our convenient and secure online platform to process your international payments. Manage beneficiaries and view payment status and history at the click of a button.

Find out more
FX business solutions

FX business solutions

We provide tailored services to help companies make international payments and manage their foreign exchange risk

Find out more