Daily Market Pulse

Dollar set for strong monthly performance

6 minute read


Despite a surprising fall in inflation-adjusted economic activity in the United States in the first quarter of 2022, the U.S. dollar remained firm against its rivals to a 19-year high and closed at 0.60% before easing on Friday. Bets on quicker U.S. interest rate hikes and growth concerns in Europe and China boosted the greenback. Meanwhile, the American economy contracted an annualized 1.4% quarter on quarter in the first three months of 2022, falling short of market expectations of a 1.1% expansion and following a 6.9% expansion in Q4 2021, owing primarily to a record trade deficit and a decline in inventory investment. Furthermore, market sentiment improved as a result of China's commitment to increase stimulus and its recent profit surge. In other news, U.S. equity futures pared losses caused by Amazon.com Inc. and Apple Inc. post-earnings slumps in extended U.S. trade on concerns about the outlooks for both tech behemoths.


The Euro drifted higher this morning amid improved market mood after closing 0.55% lower against the greenback yesterday. Meanwhile, European Central Bank Vice President Luis de Guindos claimed the peak of Europe's price spike is quite close as German inflation hit a new high, but Spain registered a decrease, the currency bloc has experienced an unprecedented period of high price increases and stress on household budgets as a result of skyrocketing energy costs, which have been compounded by Russia's war in Ukraine. Investors anticipate that the European Central Bank will begin hiking interest rates from their historic lows in the coming months. In other news, European stocks climbed Friday as China's commitment to increase stimulus boosted optimism as excellent profits continued to flow in.


The Pound sterling closed 0.70% lower on Thursday before regaining its momentum this morning amid strong corporate earnings expectations, which alleviates the concerns of growth and inflation for a while. Meanwhile, on the data front, the Nationwide House Price Index in the United Kingdom increased by 12.1% year on year in April 2022, slowing from a 14.3% increase the previous month and falling short of market estimates of 12.6%. The average price of a home in the United Kingdom has risen to a new high of £267,620. Prices increased by 0.3% month on month, marking the ninth consecutive monthly increase. While this is the smallest monthly gain since September of last year, it is the longest winning run since 2016. In other news, the FTSE 100 traded marginally higher on the final day of April, in line with its European rivals, as investors anticipated stronger UK profits after an upbeat session in Asia and Wall Street.


The Japanese Yen plunged 1.88% lower in the previous session against the greenback. The catalyst for the latest move lower in the yen was the Bank of Japan's dovish policy pronouncement on Thursday. Given persistent skepticism about its ability to achieve its long-term inflation target, the bank doubled down on its intention to maintain its ultra-dovish policies of zero interest rates and yield curve management for the foreseeable future. According to some market observers, this serves as a "green light" for traders to continue selling the Yen. Also, it sharply contrasts with the U.S. federal reserve action of raising interest rates in an attempt to curb the record-high inflation


The Loonie closed 0.09% higher in the previous session before extending its gains moderately on Friday morning. Even after the commodity-linked Loonie drifted slightly higher, it was trading at the approximately lowest level since March 8th, as the U.S. dollar strengthened amid global growth fears. Meanwhile, domestic inflation data confirmed the narrative that the Bank of Canada will need to tighten more aggressively to contain broad price pressures. In March, Canada's annual inflation rate increased quicker than projected, reaching a 31-year high of 6.7%. Tiff Macklem, Governor of the Bank of Canada, has indicated that the central bank will likely consider a second significant hike at its next meeting on June 1st, citing the economy's overheating and domestic inflationary pressures. In other news, Canada's main stock index, the S&P/TSX, rose 1.8% on Thursday, consolidating a previous-session rally fueled by advances in the oil, technical, and financial sectors.


The Mexican Peso closed 0.22% lower in the previous session before recovering its pace on Friday morning amid a positive corporate earnings season. On the data front, The Mexican unemployment rate fell to 3.0% in March 2022, from 3.9% in March 2021, falling short of market estimates of 3.5%. It was the lowest unemployment rate since the pandemic began in March 2020, with the employed population increasing by 3 million to 56.6 million and the unemployed population decreasing by 0.425 million to 1.7 million. In other news, President Andres Manuel Lopez Obrador revealed that the Mexican government is in talks with firms to negotiate price deals on basic products amid the country experiencing the fastest inflation in two decades.


The Chinese Yuan closed 1% lower in the previous session against the greenback. Chinese markets gained momentum after a series of support pledges from Chinese authorities this week to stabilize employment and support the Covid-ridden economy. In the same line, President Xi Jinping has urged for an "all-out" infrastructure-building effort to promote growth in China's Covid-ravaged economy. The summit also announced that China would implement steps to promote the healthy growth of the platform economy. On the other hand, China's viral outbreak weighed on morale, with analysts beginning to lower their expectations for the country's GDP and business earnings this year. In other news, the Shanghai Composite rose 2.4%, while the Shenzhen Component rose 3.7% on Friday, erasing losses from earlier in the week caused by economic support forecasts.


Yesterday, the Real recorded its second consecutive session of correction against the U.S. dollar. The currency closed on Thursday with gains of 0.88% against the greenback. The movement can be explained by the recovery in iron ore futures prices, which rose for the third day in China. Yesterday we commented on the pro-growth rhetoric from Chinese authorities raising expectations of a recovery in demand for raw materials. Meanwhile, the Iron Ore price regained some ground after the nearly 10% drop on Monday and was above US$ 140 a ton in Singapore. China has signaled several efforts to stabilize the economy in the last few days, and activity at the steel mills is expected to pick up once the main city center facilitates some Covid controls. Government comments regarding its new infrastructure projects may also help sustain demand for the mineral, thereby lending important support to the Brazilian currency.


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