Daily Market Pulse

Dollar mixed ahead of key economic data and global events


The U.S. dollar index, a common tool used to benchmark the valuation of the greenback against a basket of six major currencies, remains steady amid market cautiousness ahead of key events this week. The U.S. CB Consumer Confidence had an unexpected bounceback in October, posting 113.8, up from its 109.8 previously released. Authorities highlighted in the report that the proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October, suggesting that consumer spending will continue to support economic growth through the final months of 2021. The U.S. Treasury yields lost momentum, retreating back to 1.61%, while U.S. equities ended the day mixed after S&P printed fresh new all-time highs. Today, market participants await Durable good orders and Nondefense capital good orders, where expectations are set at -1.1% and 0.5% respectively, although, given the pick-up in consumer confidence, durable good orders might surprise the upside. 


The EUR remained soft against the greenback during yesterday's trading session, amid dismal German data and a softer view on inflation cementing the dovish stance from the European Central Bank. The Greenback continues to sustain a dominant position over the common currency, amid monetary policy divergence between policymakers, in addition to the low morales indicators in Germany which loom over expectations for the upcoming months. Moreover, the EUR came under pressure after the ECB survey showed that the Eurozone banks tightened access to mortgages in the last three months, and is expected to continue doing so until the end of 2021. The survey will be a key driver for policymakers to assess the economic situation, paving the way for a decision in December on the continuation of the central bank’s bond purchase programme. 


The British Pound attempted to rally amid hawkish expectations of policymakers in the U.K. during yesterday's trading session, although the Sterling failed to sustain momentum, triggering a strong sell-off due to Brexit jitters sustained during the early hours of today’s trading session. As post-Brexit negotiations resumed in London yesterday, the European Commissioner for the Internal Market, Thierry Breton, added wood to the fire by stating that Brexit has resulted in an economic catastrophe for the U.K. Today, the Treasury Chancellor will present the economic forecast for next year, containing details about Gross Domestic Product estimates, spending and borrowing, as well as fiscal stimulus. 


The Japanese Yen continues to struggle against the greenback amid monetary policy divergence weighing over the safe-haven currency. The JPY attempted a bounceback during the early hours of today’s session, as investors remain uncertain ahead of the Bank of Japan’s interest rate decision this week, which keeps the mood cautious. Moreover, softer U.S. treasury yields edging back to 1.61% gave room for the Yen to advance, although hawkish expectations should act as a tailwind for the greenback in the short term. Investors are likely to refrain from placing aggressive bets ahead of tomorrow's important Bank of Japan monetary policy meeting, and the U.S. Gross Domestic Product reading for Q3, which will bring renewed impetus to the market.  


The Canadian dollar remains subdued against the greenback, extending losses during the early hours of today, despite hawkish expectations from the Bank of Canada. As investors see the end of tapering, now what matters are interest rate hikes and monetary tightening. In their last meeting, Canadian policymakers said that rate hikes won’t happen until the second half of 2022, although interest rate futures show the market pricing a full quarter-point hike by April 2022. The mismatch between BoC and investor expectations keeps the Loonie on the backfoot, despite crude oil prices providing support. The West Texas Intermediate started the day on the backfoot, although it managed to end the day recording gains settling at USD 84.6 per barrel. 


The Mexican Peso continues to print mild losses against the dollar amid sustained inflation readings and economic indicators suggesting a slowdown. Mexican authorities released the latest figures for its monthly global indicator of economic activity, which showed a decline of 1.6% in August 2021, compared to its previous month. The report showed that the agricultural and the service sectors fell 2.4% and 2.5% respectively during the same period, while industrial activity picked up 0.4%. The deputy governor of Banxico tweeted that the reports were "bad news" for the country. 


The Chinese Yuan retraced 0.24% against the dollar during the early hours of the trading session, amid news of Chinese telecom licenses being revoked in the U.S. over security concerns. The U.S.’s Federal Communication Commission (FCC) decided to revoke China Telecom license, over national security concerns in the latest pushback by Washington against what it deems possible infiltration of key networks by Chinese companies. The news might affect the building relationship between both superpowers, which have been a work in progress between several government officials. The news also pulled U.S.-listed Chinese tech firms down sharply, as well as their stocks in Hong Kong, which suffered heavily, overall pulling the Hang Seng index over 1% down. 


The Brazilian Real remained steady through Tuesday’s trading session, amid broader market uncertainty around the imminent interest rate hike from Brazil's Central Bank, and negative growth forecasts from local banks. The BCB will meet later today, and it will announce its monetary policy statement and interest rate decision soon after the gathering. Market consensus points to an increase in the Selic rate to 7.75%, a 150 bps hike, with open room to make a more aggressive policy rate adjustment aimed at containing inflation expectation and stabilizing the BRL. However, the fiscal situation in the country will need to be addressed in order to restore credibility in the system. 


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