Daily Market Pulse

Market remains cautious ahead of FOMC

5 minute read


The U.S. dollar index, which tracks the performance of the greenback against a basket of major currencies, remained steady, retracing 0.2% amid investor caution ahead of the Federal Open Market Committee (FOMC) meeting today and the sour market mood as equity indexes retraced, pushing treasury yields lower. On the data front, U.S. releases provided mixed signals, kicking off with the Durable Goods orders data posting a 0.8% monthly increase in June, lagging behind 2.1% previously anticipated, while Nondefense Capital Goods Orders ex Aircraft data only grew 0.5%, also missing expectations. However, CB Consumer confidence exceeded expectations, releasing a solid 129.1 from a revised up figure of 128.9 in June. Coming up, market participants will stay tuned to the FOMC meeting and monetary policy statement from Jerome Powell, Chairman of the Federal Reserve, who is expected to leave monetary policy unchanged and will hint at how and when the Fed will start removing stimulus. Additionally, investors will keep an eye open for the U.S. infrastructure bill which is still under negotiations regarding details for fundings, as well as the Covid relief money package and ensuring it is fully paid. 


The EUR remained relatively unchanged against the USD, advancing 0.2% during yesterday's trading session. This is amid investor caution ahead of the Fed’s interest rate decision and a dismal market mood that seems to be removing support from equity markets. A light economic calendar on the EUR will keep market participants following closely on the monetary policy statement from Chairman Jerome Powell, who is expected to provide some guidelines for investors to establish expectations of when tapering could kick-off. Additionally, Covid infections in Europe are starting to ease, showing signs that we might be close to the peak of the current wave, while many European countries deal with the results of the recent flooding across the eurozone. 


The British Pound continued to advance against the dollar, recording 0.43% during yesterday's trading session as it currently sustains gains amid broader weakness and investor caution ahead of the Federal Open Market Committee (FOMC). Sterling is enjoying a positive momentum thanks to a significant reduction in daily Covid cases in the U.K., posting 23k in their latest release, which is over a 50% reduction from the high reported a couple of weeks ago where infections surpassed 50k daily cases. Additionally, spirits remained high following interventions from Gertjan Vliaghe, an Official from the Bank of England, who said that the Central bank should keep its stimulus possibly until 2022, hinting at the likelihood of seeing policy adjustment in the short to mid-term.      


The Japanese Yen rallied sharply against the greenback amid broader market uncertainty and caution ahead of the Federal Open Market Committee (FOMC), reporting 0.52% against it during yesterday’s trading session. The U.S. Treasury yields edged lower ahead of the Fed’s interest rate decision, suggesting a mild risk appetite from market participants as well as safe-haven currencies holding their ground amid uncertainty induced by rising Coronavirus cases. Moreover, the Yen was also supported by the Governor of the Bank of Japan, Haruhiko Kuroda, after saying that the 2% inflation target pulled Japan out of deflation. Checking the economic calendar, market participants will wait for BoJ summary of Opinions, the leading economic index, and the Fed’s interest rate decision to gauge the market sentiment. 


The Loonie stepped back 0.46% against the greenback amid crude oil prices retreating 0.76%, following the dampened market sentiment given the latest surge in Coronavirus cases and caution ahead of Fed’s monetary policy meeting and press conference due later today. The Canadian dollar will likely remain steady ahead of the Federal Open Market Committee (FOMC), but soft inflation figures for June could likely limit the upside of the Loonie. However, Chairman Powell will most likely gauge any impetus if he manages to defend the easing of policies. 


The Mexican Peso closed 0.3% higher against the dollar after the currencies recovered from a 0.5% appreciation during the early hours of the session amid dampening market sentiment due to increasing Covid cases and shortages of medicines in the country. However, the recovery kicked off after job reports announced that the unemployment rate stood at 4% in June, improving 0.2% from the May release and dropping 1.5% lower than figures from 2020.  The strong unemployment numbers sustain momentum on the MXN, but investors will stay prudent ahead of the Federal Open Market Committee and interest rate decision later today.  


The Chinese Yuan retraced 0.52% amid China’s regulatory crackdown over information technology and tuition sectors, which has triggered CNY outflows weighing on equity markets regionally, souring the market mood. However, the Yuan sell-off seems to have paused during the early hours of today, after 4 days of bearish pressure thanks to positive daily Coronavirus cases data in South Korea and prudent risk approaches ahead of the Fed’s interest rate decision and monetary policy statement. The Sell-off was also paused in equity markets, with the Hang Seng Index trading in a tight range while China Stock Index (CSI) stepped 1.8% higher.


The Brazilian Real continues to trade within a tight range, edging 0.39% higher, testing the upper bound of the channel against the U.S. dollar. The Brazilian Government announced that national subsidies and financial incentives last year accounted for 4.65% of the national Gross Domestic Product, 0.2% lower than figures reported for 2019. Following the recent constitutional reform earlier this year, the government must, by September, present a plan to Congress to reduce subsidies to 2% of GDP by 2029 as well as cutting tax incentives by 10% before the end of the year. 


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