Daily Market Pulse

Dollar gains as market resume after Thanksgiving Day

6 minute read


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, declined 0.10% on Thursday erasing small gains, this was followed by making up some ground on Friday's early session. The tepid losses yesterday were attributed to a slight drop in US yields while the modest gain this morning is due to markets opening after the Thanksgiving holiday and the broader risk-off mood in the global market as covid cases spike once again in Europe. In the meantime, the dollar remains supported by firm expectations of a rate hike by the Fed and further by a faster pace of tapering amid inflation. Looking ahead, the economic calendar does not have any scheduled data releases, this means attention will be on the European Central Bank’s (ECB) President, Christine Lagarde’s,  speech during the day. Additionally, the bond and stock market is expected to see reduced activity on Friday. 


The Euro gained 0.09% against the greenback on Thursday’s closing and has continued to edge higher upon entering the weekend’s session. The Euro advance on Friday is against the backdrop of softer yields supporting the US Dollar. Meanwhile, covid cases are surging across Europe, and imminent lockdown measures are expected to take place, which will likely have an impact on the Christmas season in terms of morale and consumer confidence. German import prices surprised in October, rising 3.8% month on month. Market participants expect that the surging Covid cases will add to the monetary policy difference between the ECB and the Federal Reserve, which in turn will keep the Euro dwindling. Later in the day, ECB President Lagarde is due to speak and will be followed by board members Schanbell and Panetta. 


The Sterling retreated 0.05% against the greenback during Thursday's closing and extended its run in the early hours of Friday, as it approached year-to-date lows. The sluggish tone around Brexit developments is adding pressure on Sterling as there are substantial gap concerns observed between the U.K. and E.U. around the implementation of the Northern Ireland Protocol.  Additionally, the French fishing body accused the U.K. of not providing the licenses due to them and warned that they would block French ports on Friday, adding further pressure on Sterling. Meanwhile, data released this morning shows that 14% of U.K. businesses have reported worker shortages in November. The labor market conditions likely increase the chance for the Bank of England to hike rates by 0.15% to 0.25% next month. This will provide fresh impetus against the negative Brexit news for Sterling. 


The Japanese Yen gained 0.06% against the U.S. dollar on Thursday’s closing, followed by mild gains in the early hours of Friday. The latest gains for the Yen are linked to sliding US treasury yields on the Thanksgiving holiday and upbeat data in the country. The Tokyo Consumer Price Index (CPI) jumped to 0.5% vs expectations of 0.1% annually, while readings excluding food and energy matched the expectations of 0.3% annually for November. Furthermore, Japan’s Prime Minister Fumio Kishida announced a wage hike of 0.3% for the spring, which added strength for the Yen against the greenback underpinning consumption expectations. Along the same line, the U.S. economic data release of the core Personal Consumption Expenditures price index printed a 30 year high for October, providing further momentum for the Yen. The downside for the U.S. dollar remains cushioned amid the Fed rate hike expectations and faster tapering talks. 


The Loonie managed to gain 0.16% against the greenback on yesterday's closing, continuing its trend of modest gains for four consecutive days..four consecutive days. However, this was followed by a U-turn, in Friday's early session marking heavy losses for the Loonie. Retreating crude oil weighs heavily on the commodities linked currency, as investors eye how major producers will respond to the U.S.-led energy oil release designed to cool the market and with OPEC now expecting the release to swell inventories. In addition to this, the Covid case's outburst in the Eurozone adds to the sour market sentiment and provides strength for the US Dollar and its safe-haven appeal. Market participants will take cues from Covid-19 headlines and broader market sentiments to find short-term trading opportunities around the Dollar-Loonie currency pair. 


The Mexican Peso declined 0.67% against the U.S. dollar on Thursday’'s closing. In the last few days, the U.S. treasury curve has edged higher as traders are assured that the Federal Reserve will tighten monetary policy earlier than anticipated in mid-2022 to combat inflation. This increased the two-year yield to 0.61% and added downside pressure to the Mexican Peso. Additionally, the dynamic collapse of the Turkish Lira hit market sentiments and added further weight to the Peso. The high inflation reading for the Banxico and fear of more rate hikes on the way keep the Peso grinding against the greenback.


The Chinese Yuan gained upbeat traction of 0.1% against its counterpart dollar at the closing of Thursday’s session. In the latest headlines, Kaisa, a Chinese real estate firm, is trying to shore up its finances as the debt crisis has loomed over over China Evergrande group and created a liquidity crunch in the industry. Additionally, mainland China has high hopes for Hong Kong's Kong's financial industry. The One Country Two System research reports mentioned that Hong K Kong should utilize its edge to position itself as an offshore Yuan center and investment hub for digital assets trading.


The Brazilian Real gained 0.68% against the greenback on Thursday’s closing. Investors took the opportunity to take profits in a day without big external catalysts and amid the debate on the pace of monetary tightening in Brazil. The Chamber of Deputies approved the text of the provisional measure creating the Auxílio Brasil, replacing Bolsa Família as the national financial aid program. However, there is no defined value for the installments to be transferred to low-income families. The amount to be paid by the government will be decided after the approval of the PEC dos Precatórios, currently waiting for the vote at the Senate. Additionally, the recent movements in electoral space include disputes between former minister Sergio Moro (Podemos), pre-candidate for the presidency, and President Jair Bolsonaro, who seeks his re-election. Both dispute the votes of the right and center-right groups. The obvious about Moro is the proximity to the military wing, seeking support from those rejected by the Bolsonaro, like General Santos Cruz- fired by Bolsonaro.


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