Daily Market Pulse

Dollar steady ahead of key Q3 growth figures

6 minute read


The U.S. dollar index used to benchmark the performance of the greenback against a basket of six major currencies, finished its second straight day moving sideways, and sustains pressure during the early hours of today's session. Data from the U.S. revealed on Wednesday that Durable Good Orders contracted by 0.4% in September, instead of the 1.1% contraction previously anticipated. However, the international trade deficit expanded to 96.3 billion from 89.4 billion weighing on the greenback. The market remains cautiously risk-averse limiting losses for the greenback ahead of key events. The U.S. Treasury yield continued to edge lower while short-term T-bond edged higher, flattening the yield curve and holding the greenback valuation. Moreover, the U.S. Bureau of Economic Analysis is set to release Gross Domestic Product figures for Q3, which will keep market participants on the edge of their seats. Additionally, September Pending Home Sales and the Weekly Initial Jobless Claims will be featured in the U.S. Economic calendar as well. 


The EUR remains subdued against the greenback ahead of the European Central Bank (ECB) monetary policy decision and German labour market reports. The ECB will remain focused on its stimulus program and inflation readings and is expected to reaffirm the dovish stance at its meeting later in the session. The  Governing Council's views on the current elevated inflation will be at the centre of the debate along with the continuation/end of the ongoing stimulus programme. Policymakers continue to struggle with asymmetric economic recovery and sustained inflation in the region which will most likely keep the stance Dovish. Additionally, tensions between the E.U, Poland, and Hungary in combination with ECB tapering expectations keep the morale low.  


The Pound Sterling struggles to define direction amid investor cautiousness awaiting renewed catalysts and tensions between France and the U.K. all limiting the potential for cable. Amid Brexit chatter, the French government showed readiness to block the British ships from their ports in the next week should the U.K. refrain from easing controls overfishing. Britain, on the other hand, marked the ability to retaliate. Richard Hughes, Chairman of the U.K.'s Office for Budget Responsibility said that the impact of Brexit on the U.K. economy will be worse in the long run compared to the coronavirus pandemic. Moreover, U.K Chancellor Rishi Sunak announced measures relating to infrastructure, alcohol duty cuts, and an increased budget for all departments totaling around GBP 75 billion of giveaways. 


The Bank of Japan (BoJ) left its monetary policy unchanged, sustaining its dovish stance leaving the Japanese Yen moving horizontally and matching expectations. However, policymakers lowered the 2021 and 2022 growth forecast to 3.4% from 3.8% while the report flagged that Japan’s consumer inflation is likely to gradually accelerate. The dovish stance from the BoJ surprised nobody and remarks were largely ignored as the pair continued to trade within a tight range amid expectations of key growth data in the U.S. and some quiet in U.S. treasury yields.  


The Bank of Canada (BoC) left its monetary policy unchanged as previously anticipated and announced the end of its quantitative easing program in a surprise move. The Central Bank reduced the pace of its bond purchases from CAD two billion a week, to zero moving forward in the recovery from the pandemic. Policymakers flagged that interest rate hikes may be coming sooner than expected showing a stronger hawkish stance than market participants suspected. The BoC hawkish shift triggered a sharp upsurge in short-term Canadian debt with the one-year bond yields rising over 20 bps. The Loonie responded positively to the BoC announcement, capitalizing gains against the greenback during the press conference. Today, market participants expected Gross Domestic Product reading in both the U.S. and Canada which will renew impetus on the pair, although market participants will remain tuned to the latest crude oil pullback changing hands at USD 81.4 per barrel, USD three dollars lower than yesterday. 


The Mexican Peso remains subdued against the greenback amid hawkish Fed expectations and unemployment readings showing improvement in its latest report. Job reports showed that the unemployment rate reached 4.2% in September, improving 0.1% from August. Moreover, the Trade Balance reading showed a reduction in the commercial deficit in the country, improving from USD 2.8 billion to USD 2.4 billion in September. Additionally, Mexico’s President Andres Manuel Lopez Obrador accused the supreme court of protecting corruption and a minority adding to the political instability in the country. Today market participants expect Fiscal Balance in the country which could spark renewed impetus in the pair.  


The Chinese Yuan stepped back against the greenback during yesterday’s trading session, retracing 0.16%. The U.S - China relation seems to be doing one step forward and two steps back amid the recent developments in the geopolitical and regulatory aspects. The revoked licenses from China telecom definitely do not aid the diplomatic work that both parties have invested in, although serious accusations of espionage keep the mood cautious. Additionally, China's hypersonic missile test raised serious concerns among top U.S. generals, highlighting that the test was close to being a sputnik moment.


The Brazilian Central Bank hiked the Selic rate by 150 bps points on Wednesday, recording the biggest hike since 2022 as policymakers struggle to tame surging inflation. Despite the significant increase, the outcome was pretty much in line with market expectations as the economy is taking a hit from soaring prices and a slowdown in China. Policymakers flagged that a hike of the same magnitude was likely to happen at its next meeting scheduled for December. Fears of the repercussions of Auxilio Brasil keep market participants shivering as the subsidy itself could intensify inflationary pressures and compromise the fiscal situation and its constitutional validity. 


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