Daily Market Pulse

Dollar rises above five year high levels


The U.S. Dollar Index rose above five years high levels early Thursday, after closing 0.67% higher the previous day, boosted by risk aversion and hawkish Fed predictions. On the political front, the European Union is preparing a response to Russia's decision to halt gas exports to Poland and Bulgaria. Russian President Vladimir Putin stated that the west's plot to choke Russia's economy had failed. Reacting to the improving market attitude, U.S. equity futures rose Thursday after strong profits boosted the bull case for the economy and markets, keeping aside growth concerns for the time being. Moving forward, investors will be watching for the first-quarter Gross Domestic Product (GDP) data from the U.S. economic docket later in the day. 


The Euro closed 0.76% lower in the previous session before consolidating its losses on Thursday morning. The common currency sank as investors realized that the European Central Bank, confronted with slower economic growth and increasing inflation as a result of the Ukraine crisis, would be unable to hike borrowing costs as quickly as the Federal Reserve. Meanwhile, energy businesses in Germany, Austria, Hungary, and Slovakia were intending to pay for Russian gas in roubles, which European Commission President Ursula von der Leyen claimed would violate Russia's sanctions. In other news, the newest figures suggest that consumer mood in Germany has reached a new low. Also, the Federal Reserve raised interest rates for the first time since 2008 March, signaling that more dramatic rises are on the way, while the European Central Bank is projected to raise borrowing costs only in July.


The Pound sterling closed 0.23% lower on Wednesday before regaining its momentum back amid an improved market mood triggered by positive corporate earnings. On the data front, In March 2022, UK vehicle manufacturing fell 33.4% year on year to 76,900 units, as production levels were hampered by a global shortage of semiconductors and other components. The latest figure was likewise the lowest for March since the financial crisis in 2009, owing mostly to a 41.4% drop in output for export markets. In other news, the FTSE 100 rose for the third session in a row on Thursday, tracking its European peers, as investors focused on a fresh batch of earnings against rising headwinds to global growth, including volatile natural gas supplies to Europe, a looming aggressive tightening cycle by the U.S. Fed, and increased curbs to combat virus outbreaks in China.


The Japanese Yen closed 0.94% lower in the previous session against the greenback. The Yen surpassed the critical 130-per-dollar mark on Thursday for the first time since April 2002, as the Bank of Japan (BOJ) increased its enormous stimulus program and pledged to maintain interest rates ultra-low to sustain a weak economy. Every market day, the central bank said it will offer to buy an unlimited quantity of 10-year government bonds to preserve an implicit 0.25% yield cap around its zero objectives. The BOJ's dovish position contrasted sharply with that of the Federal Reserve, which is poised to aggressively raise interest rates. In other news, the Nikkei 225 Index rose 1.75% on Thursday, while the wider Topix Index rose 2.1%, fully recovering from severe losses in the previous session following the Bank of Japan's decision to boost the economy.


The Loonie closed 0.05% higher in the previous session before extending its gains moderately on Thursday morning. The Canadian dollar gained ground as market sentiment improved as a result of favorable corporate earnings reports, as well as an increase in oil prices caused by Russia's suspension of natural gas exports to Europe. Meanwhile, Canada intends to give itself the authority to confiscate the assets of sanctioned Russian individuals and corporations and use them to pay victims of the Ukrainian war. The additional measures will be incorporated into the government's budget legislation, which means they will almost certainly be approved by parliament by the summer. In other news, Canada's main stock index, the S&P/TSX, managed to settle 0.3% higher on Wednesday, halting a five-session slide that had taken the Canadian index to its lowest level in three months.


The Mexican Peso rose 0.15% in the previous session against the greenback before extending its momentum on Thursday morning. This follows the improved risk sentiment, triggered by positive corporate profit reports which keep aside the economic growth concerns for the time period. Meanwhile, the United States Supreme Court has questioned President Joe Biden's attempt to reverse his predecessor's "remain in Mexico" policy, which has compelled tens of thousands of asylum seekers to wait south of the border while their claims are processed. Elsewhere, Mexico's central bank has raised interest rates seven times in the last seven sessions, attempting to reduce inflationary pressures caused by the Ukraine crisis. Nonetheless, investors continued to flee government debt amid persistent fears that rising food costs would send the country into recession.


The Chinese Yuan closed marginally higher in the previous session against the greenback. On Thursday, the Yuan fell against the U.S. dollar, extending its recent decline to its lowest level in almost a year, amid fears that Shanghai-style lockdowns could spread to other parts of China as major cities cranked up virus testing. The Yuan fell roughly 4% in two weeks as China's deteriorating Covid situation put more downward pressure on its shattered economy and emphasized the need for greater policy easing. This was in stark contrast to other major economies, with the U.S. poised to hike interest rates quickly this year in order to control inflation. In other news, China's central bank announced a reduction in the reserve requirement ratio for foreign currency deposits to 8% from 9% beginning May 15, in an effort to maintain a swiftly sinking Yuan.


After three consecutive sessions of losses, the Brazilian currency presented a slight correction this last Wednesday, ending the day up 0.55%. The day was marked by the release of the IPCA-15 – considered a preview of the country’s official inflation – registering 1.73% in April, the highest rate for the month since 1995. In the 12-month period, the index reached 12.03%. As a result, pressure increases for the Central Bank to extend the Selic base rate adjustment cycle beyond May. Meanwhile, Brazil is home to more than 8% of ore deposits of available iron, the fifth largest in the world. Having said that, the futures price of iron ore is a crucial component in the pricing of the Real. In recent weeks, the recent devaluation of the Real comes in tune with the news that China – a major consumer of the raw material – is facing a new wave of Covid contagion and lockdowns are being imposed in numerous locations. Investors are pricing in the cooling of the demand for the ore, despite the Chinese government's efforts to extol its major infrastructure projects. 


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