Daily Market Pulse

The dollar attempts to comeback


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed 0.23% lower before gaining upward traction during European trading hours. The greenback fell to a monthly low in yesterday's session before recovering momentum on early Thursday. This follows a strong move in U.S. Treasury yields, which rose to their highest, over 4.5%, in three weeks on the previous day, touching high levels similar to November 29th. Furthermore, the U.S. dollar weakened as US Pending Home Sales for November fell short of expectations, falling from +0.5% to -2.2% on a monthly basis, while the Good Trade Balance stood at high record deficit of $-97.8 billion, against $-83.2 billion the previous month. Elsewhere, U.S. market futures were barely changed on Thursday after the Dow and S&P 500 set new highs, 0.25% and 0.14% respectively, the day before in a lightly traded last week of 2021. Coming up, the U.S. Weekly Jobless Claims and Chicago Purchasing Managers' Index for December, expected at 205K and 62 respectively, will direct dollar prices further. 


The Euro closed 0.34% higher against the U.S. dollar, although losing its momentum and extending its slide in the early hours of today. The European currency jumped to monthly highs yesterday, achieving the largest daily gains in a week, before falling back as the European trading day began. This followed the volatility in the U.S. bond market and disappointing U.S. economic data, however, rising cases of the Omicron variant globally as well as geopolitical risk between the U.S. and China weigh on risk appetite, putting pressure on the Euro. Elsewhere, on Thursday, European Central Bank (ECB) policymaker Klaas Knot stated that inflation in the Eurozone could very well remain above the central bank's 2% target in the coming years. Looking forward, traders will see wider market movements and U.S. data releases to give a fresh direction to the Euro. 


The Sterling closed 0.42% higher followed by losing its pace modestly when entering Thursday's early trading session. This comes after the U.S. dollar made a strong comeback, reversing a major part of the overnight losses and bringing it back closer to the monthly low. This, together with the worsening of the COVID-19 situation in the United Kingdom, prompted some selling for the Sterling. Meanwhile, the United Kingdom reported a record 183,037 new COVID-19 cases on Wednesday, which may compel the government to impose additional restrictions if the trend continues. Additionally, traders also absorbed a faster-than-expected 1% increase in UK countrywide property prices, with the "average" housing unit reaching a record £254,822, 16% higher than pre-pandemic levels. Furthermore, the FTSE 100 index fell on Thursday after climbing 0.7% to a 22-month high on Wednesday's resumption of trade. 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 0.11% lower versus the U.S. dollar and continued losing its pace when heading into Thursday's morning session. The currency plummeted to one-month lows against the US dollar, as the safe haven currency fell out of favour with investors amid improved risk appetite and hopes that the omicron variant would not derail the global economic recovery. Meanwhile, The underlying bullish sentiment in the financial markets continued undermining the safe-haven Japanese yen and acted as a tailwind for the U.S. dollar. Elsewhere, the Japanese government approved a record 107.6 trillion yen budget for fiscal year 2022 last week, with the goal of recovering from a pandemic. Economists anticipate that the Yen is likely to fall more than 10% this year as a result of divergent monetary policies, with the Bank of Japan (BoJ) maintaining ultra-loose monetary settings as other central banks switched to tightening cycles. Moving ahead, the Yen will follow broader market sentiments and U.S. data release for further price movement. 


The Loonie closed 0.24% higher against the greenback, although it lost its momentum this morning and continues to weaken against the dollar. The Loonie held up well yesterday due to higher crude oil prices and a weaker U.S. dollar, before losing ground in the Asian trading session and continuing to slide due to the dollar's recovery. West Texas Intermediate (WTI) crude oil jumped to its highest since November 26 the previous day, up 0.05% around 76.35 following the weekly inventory statistics from the U.S. Energy and Information Administration (EIA). Aside from the positive fundamentals of its oil prices, the Loonie benefited from widespread U.S. dollar weakness yesterday, as Treasury rates rose and the U.S. economic indicators weakened. Elsewhere, the S&P/TSX, Canada's main stock index, climbed 0.5% on Wednesday, extending advances to five-week highs for the fifth session. Following that, traders will see broader market mood, oil price dynamics and U.S. data releases to further direct the Loonie prices. 


The Mexican peso finished 0.36% higher against the U.S. dollar before losing its momentum when heading into Thursday’s morning session. The Mexican peso was trading at its highest level since November 12th, as oil prices rose and fears over the Omicron subsided. Despite growing Covid cases and additional limitations, investors' risk appetite grew as tests revealed that the new variation is less severe than earlier strains, but more contagious. 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. Also, at its most recent meeting, the Banxico surprised the markets by raising interest rates by 50 basis points to 5.5%, exceeding market expectations of 25 basis points, citing deterioration in the inflation risk balance, with both headline and core inflation expectations for the coming year rising again. Moving forward, traders will look at broader market sentiments to provide fresh momentum to the Peso. 


The Chinese Yuan closed 0.04% higher against the U.S. dollar. In holiday-thin trading on Thursday, the Yuan stayed steady versus the greenback, with a weaker-than-expected official midpoint fixing restricting the local currency's upside. The People's Bank of China (PBOC) has sent a series of signals in the last two months, including weaker-than-expected official midpoint fixings and an increase in the reserve requirement ratio (RRR) on FX deposits, to rein in the Yuan, which has been supported by a higher FX settlement due to robust exports and a growing trade surplus. Economists anticipate that rising expectations for monetary easing, including more RRR and interest rate cuts, to combat increasing downside pressure on the Chinese economy next year, while the US Federal Reserve is expected to raise rates, could also drag the Yuan down in the medium term. Elsewhere, the Shanghai Composite climbed 0.62% and the Shenzhen Component gained 0.97% on Thursday as mainland equities recovered from Covid-driven sell-offs.


The Brazilian Real closed 1.01% lower against the greenback in the last session. This comes after market participants drew attention to the lack of liquidity in the middle of news with few catalysts. Overseas, investors remained concerned about the spread of the coronavirus's omicron variant and its potential economic ramifications. Domestically, the Brazilian wholesale inflation index, known as the IGP-M, was 0.87% in December, compared to 0.65% expected. Following that, investors were keeping a close eye on the battle for the creation of the end-of-year Ptax, which will be specified this Thursday. In other news, the main Sao Paulo stock index, the Bovespa, lost 0.8% on Wednesday, the lowest in four weeks and lagging its foreign rivals as travel stocks slumped on Omicron fears.


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