Daily Market Pulse

Dollar holds its decline ahead of nonfarm payroll data

USD

The U.S. dollar index appears to be consolidating its losses on Friday morning after declining 0.71% in the previous session, facing pressure from a robust rally in risk assets and uncertainty over the Federal Reserve's monetary tightening plans. Overnight data showed that private payrolls in the United States increased less than expected last month, while investors await U.S. Nonfarm payrolls data due later today to gauge the strength of the broader economy and dictate the outlook for U.S. monetary policy. Meanwhile, two members indicated on Thursday that the Fed is likely to continue tightening monetary policy beyond the half-point rate hikes predicted at its next two meetings. In other news, S&P 500 futures slipped 0.2% ahead of critical U.S. jobs report that investors will scrutinize for signs of central bank policy tightening pace. 

EUR

The common currency surged 0.91% yesterday, supported by the favorable risk appetite, although appears to be holding steady near the gains this morning. On the data front, the annual producer price index in the Eurozone rose to a new record high of 37.2% in April 2022, up from an upwardly revised 36.9% in March, indicating that inflationary pressures in Europe have not yet peaked and strengthened the case for the European Central Bank (ECB) to begin tightening more aggressively. Nonetheless, the data fell short of market expectations of 38.5%. The main cause of the hike was energy, although, increases were also widespread in other categories. Reflecting the positive tone in equity markets, the European Stoxx 600 index was up 0.2%, with chemicals and utilities leading the limited gains. 

GBP

The pound sterling was seen lacking momentum on Friday morning, after posting gains in its previous session, where it closed 0.73% higher against the greenback. In the recent news, despite concerns about an economic downturn, Britain's 10-year Gilt broke over 2.1% for the first time since July 2015, in anticipation of increased interest rates. Markets are now pricing in 138 bps of Bank of England rate hikes by the end of the year, as inflation is near 40-year highs and forecast to touch double digits in Q3. However, there are growing doubts about how far the central bank can raise rates without sparking a recession, and the Bank of England has already warned that the economy will be on the verge of a recession by the end of the year. Elsewhere, UK markets will be closed on Thursday and Friday for Queen Elizabeth's Platinum Jubilee. 

JPY

The Japanese Yen edged up yesterday amid the weakened U.S. dollar and closed 0.22% higher before consolidating its gains on Friday morning. Meanwhile, a closely watched part of Japan's yield curve steepened to the most in over six years, implying that anticipation about changes to the Bank of Japan's (BOJ) ultra-easy monetary policy has subsided. According to Bloomberg statistics, the disparity between five-year and 10-year rates has risen to 24 basis points, the biggest since the BOJ implemented its negative-rate policy in January 2016. Traders are also betting that a jump in inflation will compel Japan's central bank to quit its ultra-easy policies. Following a solid overnight finish on Wall Street, the Nikkei 225 Index rose 1.3% on Friday, reaching its highest level in two months and beating regional counterparts with a 3.7% weekly gain.

CAD

The Canadian currency continues to hold its upside momentum after finishing yesterday's session with 0.69% gains. The prolonged momentum is based on elevated oil prices and the Bank of Canada's tightening commitments. On Wednesday, the Bank of Canada raised its benchmark policy rate by half a percentage point to 1.5% to contain inflation, the levels not seen since 1991. Monetary policymakers also announced it is continuing quantitative tightening measures, extending the process to run down its balance sheet while signaling that the central bank will hike interest rates further in the coming meeting. Recent economic figures, however, reveal that the economy expanded slower than predicted in the first quarter, limiting additional upside momentum. Also, the Loonie may lose traction as the oil price pared gains this morning as a result of Opec's statement that it will increase supply in the summer. 

MXN

The Mexican peso, this morning, appeared to be giving up some of its gains from yesterday's session, where it surged 0.87% against the greenback. In the latest data releases, consumer confidence in Mexico reached a four-month high of 44.2 in May, remaining steady from the previous month. The current evaluation of households' financial status and future expectations of households' financial situation improved. Furthermore, the view of the country's economic status in the future was slightly improved. Elsewhere, Petroleos Mexicanos obtained less money than planned this week to refinance part of its outstanding debt to suppliers, while offering buyers a discount.

CNY

The Chinese Yuan closed 0.44% higher against the greenback in the previous session. In holiday-thinned trade on Friday, the Yuan surpassed strengthened against the U.S. dollar, reaching its highest level in a month, aided by improved risk sentiment and optimism about China's economic comeback from Covid lockdowns. On June 1st, Shanghai removed a two-month lockdown, with authorities promising to hasten the implementation of new measures aimed at stabilizing the economy. The 33-measure package addressed fiscal, financial, investment, consumption, and industrial issues, among others. The plan also includes an 800 billion yuan increase in policy bank lending quotas to offer financial support for infrastructure construction. Analysts predict that the Chinese economy would decrease in the second quarter and that the recovery will be a long and arduous process reliant on Covid developments, with consumers and companies unlikely to regain confidence instantly.

BRL

The Brazilian currency closed negatively on Thursday, registering losses of 0.13% against the U.S. dollar. Meanwhile, market participants evaluated the GDP Q1 results. Economic activity advanced 1.7% against the same a quarter of 2021 and 1% compared to the last three months. However, due to inflationary pressure and monetary tightening by the Central Bank of Brazil, the market expects a gloomy scenario ahead, as the first three months benefited from the economic reopening after Covid-19 and the reduced effect of high-interest rates. Also, the rise in fuel prices follows the main agenda in the local market, as well as in politics, since it has a significant impact on inflation - which is seen as one of the biggest factors that influence how people will vote in October. Way forward, traders will monitor the country's industrial production figures in April, with early estimates suggesting a breakthrough amid better confidence and gains in the automotive sector.

 

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