Daily Market Pulse

The dollar rises as riskier assets paused

7 minute read


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed 0.13% higher and continues to move upwards during the early hours of Wednesday. The dollar index edged higher on Wednesday, as a recent surge in riskier assets paused, but trading activity remained sluggish owing to the new year’s holiday ahead. Furthermore, the release of tier two data yesterday bolstered the greenback. The U.S. Housing Price Index eased to 1.1% in October, vs expectations of 1.2%, while the Richmond Fed Manufacturing Index for December surpassed the 12.00 level with 16.00. Elsewhere, U.S. stock futures gained on Wednesday after a mixed day, as markets took a break from a sharp recovery rally, while investors assessed the risk of the Omicron variant. Dow Jones futures rose 0.1%, while S&P 500 and Nasdaq 100 futures rose 0.2% and 0.3%, respectively. Moving on, risk catalysts, as well as data releases such as US Pending Home Sales and Goods Trade Balance for November, will direct the dollar price further. 


The Euro closed 0.16% higher against the U.S. dollar, although losing its momentum and extending its slide in the early hours of today. This comes after the U.S. dollar received fresh demand in tandem with Treasury yields. Additionally, the currency is weighed down by the mixed market mood, which includes growing covid cases in Europe and optimism about the less severe effects of the new Omicron variant. Meanwhile, the monetary policy divergence between the European Central Bank (ECB) and the Federal Reserve, continues to support the case for a March Fed rate hike, allowing the dollar to maintain its lead over the Euro. In other news, Eurozone household loans increased 4.2% year on year in November, up from 4.1% the previous month, which was the biggest since November 2008. Furthermore, credit to businesses increased by 2.9%, up from 2.5% in October. Looking forward, traders will see wider market movements to give a fresh direction to the Euro. 


The Sterling closed 0.03% lower followed by continuing its downtrend, dropping to a fresh intraday low on Wednesday's early trading session. The British pound fell in value as a result of the news that the nation recorded a record 129,471 new cases on Tuesday, which might compel the government to implement more restrictions. Furthermore, despite diminishing fears about the rapidly spreading Omicron variant, investors are worried about the economic implications of the ongoing spike in new COVID-19 cases. This, in turn, weakened the pound. Elsewhere, the FTSE 100 hit a new 21-month high on Wednesday, when trading resumed on the London Stock Exchange after it had been closed for holidays since Friday afternoon. Looking forward, traders expect broader market sentiments as well as Omicron and Brexit-related developments to provide fresh impetus to Sterling. 


The Japanese Yen closed 0.05% higher versus the U.S. dollar before losing its pace to witness downward momentum when heading into Wednesday's morning session. The Japanese Yen stayed weak amid broad dollar strength, as traders continued to analyze risks from the Omicron variant. The safe-haven currency has lately fallen out of favor with investors, despite increasing risk sentiment and favorable news flow around the new variant. The rally in riskier assets, however, came to a halt on Wednesday, with the dollar appearing to benefit more than the yen. Meanwhile, Japan Prime Minister Fumio Kishida announces a shift in the booster shot timing to combat the spread of the Omicron variant. In other news, the Nikkei 225 Index slid 0.56% on Wednesday, while the wider Topix Index fell 0.3%, reflecting a retreat among global peers as traders assessed the danger of the Omicron virus. Moving ahead, the Yen will follow broader market sentiments and U.S. data release for further price movement. 


The Loonie closed 0.26% lower against the greenback and continues to be undermined with tepid losses/gains this morning. The Loonie yesterday held strong against the U.S. dollar due to bullish Crude oil prices, underpinned by easing concerns of Omicron and Tuesday’s positive report from the American Petroleum Institute. However, the currency could not stand the heat of the dollar comeback and witnessed a fresh drop during the European trading session on Wednesday. Meanwhile, Investors now await the official crude oil supply data from the U.S. Energy Information Administration, due later during the U.S. session. Following that, traders will see broader market mood and oil price dynamics to further direct the Loonie prices. 


The Mexican peso finished 0.21% higher against the U.S. dollar before losing its momentum when heading into Wednesday’s morning session. Yesterday, the Mexican peso reached a six-week high, the highest since November 12th. This comes on the heels of increased oil prices and lessening worries about the Omicron virus. Despite growing Covid cases and additional limitations, investors' risk appetite grew as studies revealed that the new variation is less severe than earlier strains but more contagious. Meanwhile, Crude oil prices, a key Mexican export, have risen to over $76 a barrel, up more than 10% from a low of $68.61 on December 20th. Additionally, when traders return to their desks after the holidays next week, COVID-19 (Omicron), economic data, and monetary policy (Fed and Banxico) should be back in the spotlight. Moving forward, traders will see broader market sentiments to provide fresh momentum to the Peso. 


The Chinese Yuan closed 0.04% higher against the U.S. dollar. On Wednesday, the offshore Yuan remained unchanged against the U.S. dollar, as investors kept to familiar levels in the last week of 2021. The Chinese currency is on track to gain for the second year in a row, rising approximately 2.5% versus the U.S. dollar. This would make it the best performing emerging market currency in 2021, supported by strong exports, a rising trade surplus, and significant onshore dollar liquidity. Meanwhile, China has implemented a "zero Covid-19" approach of stringent border controls, extended quarantines, and targeted lockdown in preparation for the Winter Olympics in February 2022 as the nation recorded 209 illnesses on Tuesday, the most one-day tally since March 2020, although modest in contrast to Western nations. Elsewhere, the Shanghai Composite slid 0.91% and the Shenzhen Component sank 1.24% on Wednesday, pulled down by consumer-related firms after the extension of lockdowns in northern China as the nation fought its largest Covid rise in 21 months.


The Brazilian Real closed 0.08% lower against the greenback in the last session. This follows the focus of investors on the unfolding of the Omicron variant and the prospects for the country's fiscal health. Meanwhile, the Brazilian Institute of Geography and Statistics revealed that Brazil's unemployment rate fell to 12.1% in the three months to October 2021, down from 13.7% in the three months to July 2021, and below market estimates of 12.3%. Furthermore, the Central Bank mentioned that the average bank interest rate on loans for people and businesses reached 34.1% per year in November, the highest level since 2021, while, the value of loans in Brazil climbed by 1.8% month on month to BRL 4,575.1 million in November 2021, after a 1.5% rise the previous month. Following that, investors were concerned about increased costs for the next year, despite the government's attempt in changing the spending cap rule and making space in the budget via the Precatório PEC.


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