Daily Market Pulse
U.S. Federal Reserve policy decision later today6 minute read
The dollar index rose 0.1% against major peers on Tuesday, gaining against the CAD and commodity currencies, with investors repositioning their portfolios ahead of a policy decision later today by the U.S. Federal Reserve. Looking ahead, investors and traders will pay close attention to remarks from Fed Chairman Jerome Powell, who will address questions about economic conditions and the next steps of the U.S. monetary policy. Regardless of the outcome, Fed sticking to a dovish stance or moving to tighten its policy, volatility may increase post-FOMC. Apart from FOMC, investors will be also looking to President Biden’s first address to a joint session of Congress, also scheduled later on today. Biden is expected to roll out a plan to raise taxes on the wealthiest Americans.
The Euro was almost flat (+0.01%) against the U.S. dollar as the risk appetite slackened ahead of a Federal Reserve policy decision later today. From the technical perspective, the resistance barrier around 1.21 is proving a tough level to breach. On the other hand, the common currency is supported by the 100-day moving average. Looking ahead, the EUR will continue to trade cautiously in a tight trading range as global market players watch for any clues on the timing of the Fed's eventual policy tightening. Nonetheless, volatility could increase post-FOMC, even if the Central Bank is simply going to stick to its recent announcement.
The British Pound rose 0.04% against the greenback and notched three straight daily advances on Tuesday. However, political noise from the imminent Scottish elections appears to cloud GBP’s performance and hurt sentiment. Scotland will vote for the next Holyrood parliament on May 06 and, according to media reports, a strong result for pro-independence parties will raise pressure on the U.K. government to grant another independence referendum. Apart from polemical remarks from PM Boris Johnson earlier this week, new infection numbers have dropped to the lowest levels since September last year, placing the U.K. on the way to move to the third stage of the reopening plan on May 17. This next phase will see indoor hospitality and professional sporting venues reopen to the public.
The Japanese yen rallied and printed strong gains (+0.58%) against the U.S. dollar on Tuesday as investors welcomed the recent figures from the services sectors, which showed that retail sales climbed 1.2% month-over-month in March, well above expected 0.6%. The rise in sales for the second month in a row comes about despite pandemic restrictions. The reading suggests that online shopping perhaps offset the consequences of a renewed state of emergency (movement reduction & store hours reductions). Looking forward, all eyes will be on the FOMC meeting today as it is expected that authorities might drop a hint of tapering shortly. If so, the outcome will spark a sense that the Bank of Japan is lagging far behind in terms of a hawkish stance.
The Canadian Dollar slid 0.09% against its U.S. counterpart after OPEC and its allies confirmed plans to gently revive oil production as global demand recovers from the pandemic, despite surging infections in India. However, OPEC’s decision was based on data showing that China's demand for oil is above pre-pandemic levels, the U.S is almost back there and the distribution of vaccines in Europe is progressing fast. On the pandemic front, Ontario extended its current emergency stay-at-home order, introduced earlier April, from four to six weeks and has a limited essential business operating capacity to just one-quarter. Looking ahead, tightening of restrictions across the country might weigh on the CAD while Canadian retail sales figures for February headline the economic docket.
The Mexican Peso led losses across the region, with the currency depreciating almost 1% against the greenback, on Tuesday. This is the result of an unexpected trade deficit (larger-than-expected) reported by the national statistics agency INEGI. Latin America’s second-largest economy posted a $2.906 billion trade deficit last month, mostly driven by the weak performance of auto exports in February-march, a sector that suffered supply chain disruptions caused by gas supply restrictions in parts of the U.S. and Mexico and scarcity of semiconductors. Looking ahead, investors and traders will closely watch the U.S. Federal Open Market Committee meeting today. Elsewhere, ongoing talks with Russia to package the Sputnik V vaccine are still in the spotlight.
The Chinese Yuan managed to print gains (+0.09%) on Tuesday amid a renewed deterioration in the China-European Union relationship. The European authorities are seeking to impose a levy or block deals on goods from Chinese state-owned companies amid the growing economic threat posed by China. The country ranked as the EU’s second-largest trade partner in 2019 (behind the U.S.), with two-way goods commerce valued at more than 1 billion euros a day. Looking ahead, in the absence of domestic data, market players will be scrutinizing the Fed’s remarks later today, looking for clues as to what will be the next step in U.S. monetary policy.
Senate inquiry developments appear to be a thorn in Bolsonaro’s administration side ahead of next year’s election. The rapporteur, Senator Renan Calheiros, launched on Tuesday the pandemic probe to investigate government actions and management during the Covid-19 pandemic, adding further pressure on President Bolsonaro. As a result, the Brazilian real dropped 0.29% against the U.S. dollar. On the economic data front, the half-month consumer inflation (IPCA-15) rose above 6% in April for the first time in more than four years, statistics agency IBGE said, once again driven by rising transportation costs. On that note, expectations thatBrazil’s Central Bank will aggressively hike its interest rate (Selic) in the next meeting should be supportive for the BRL. Looking ahead, Fundação Getúlio Vargas will publish its Consumer Confidence Survey later today.