Daily Market Pulse

Dollar declines amid ongoing peace talks

7 minute read


The U.S. dollar index dipped on Wednesday, extending a 0.68% slide from the previous day and retreating further from a three-week high, as news of progress in peace talks between Russia and Ukraine weakened the greenback's safe-haven appeal. Russia said it would reduce military activities in Kyiv and another city, while Ukraine requested a neutral status as a confidence-building measure toward peace talks. Having said that, market action does not yet indicate a clear shift in attitude, with U.S. stock index futures trading flat on the day. The 10-year U.S. Treasury note yield is down 1.3% to 2.37%. In terms of data, the number of job opportunities in the United States was 11.266 million in February 2022, a near-all-time high. Investors are now anticipating ADP Employment Change and Q4 GDP statistics from the United States. In addition, investors are looking forward to Friday's non-farm payroll report to judge the strength of the labor market and the outlook for monetary policy.


The Euro closed 0.93% higher on Tuesday and continued to edge up this morning as the ceasefire talks lifted the sentiments and boosted the common currency. Having said that, Ukraine has recently announced its willingness to accept a neutral status as part of a peace deal with Russia, and the Russian Deputy Defense Minister stated following bilateral discussions in Istanbul that the country has resolved to reduce military activities near Ukraine's Kyiv and Chernihiv. In addition, the prospects of the European Central Bank (ECB) raising interest rates faster this year to combat inflation are increasing, with money markets pricing four quarter-point hikes in 2022, the most since before the financial crisis. In other news, the Stoxx 600 in Europe halted a three-day winning streak after rising to its highest level in five weeks on Tuesday. Moving forward, The German inflation report, Eurozone sentiment statistics, and ECB President Lagarde's speech will all be on the European agenda for the day.


The Pound Sterling edged up on Wednesday morning, extending its gains of 0.04% from the previous session amid the improved market mood. Meanwhile, the yield on Britain's 10-year gilt was about 1.6%, not far from a three-and-a-half-year peak of 1.75% reached on March 28th, as investors continued to sell off government debt on the prospect of higher interest rates. Nonetheless, the Bank of England (BoE) softened its tone during the March meeting, while the Fed said it could raise rates by 50 basis points in the coming meetings if necessary. Policymakers warned that inflation, which is currently at 30-year highs, could rise to around 8% in 2022 Q2, and possibly even higher later this year. On the political front, Prime Minister Boris Johnson will testify before the Liaison Committee after a UK police report revealed that parties at his office violated lockdown regulations. In other news, the FTSE 100 moved marginally above the flatline on Wednesday, near levels not seen since February 16th, outperforming its European rivals as gains in commodity-linked equities offset losses in banks.


The Japanese Yen closed 0.79% higher in the previous session against the greenback. Following the ceasefire discussions between Russia and Ukraine officials, which raised market sentiment, weakening the U.S. dollar, the Japanese Yen strengthened versus the greenback. Meanwhile, investors were keeping a close eye on events in Ukraine's crisis, despite signs of progress in cease-fire talks, and reviewing an inversion in U.S. yields that stoked recession fears. Also, Retail sales in Japan fell by 0.8% year on year in February 2022, contrary to the market consensus of a 0.3% drop and a downwardly revised 1.1% growth the previous month. This was the first fall in retail commerce since September of last year, as sales of most commodities fell. In other news, the Nikkei 225 Index declined 1%, while the wider Topix Index fell 1.3%, reversing earlier session gains, as Japanese stocks lagged behind regional peers. In the midst of the cherry blossom season, new Covid cases in Tokyo more than doubled from a week ago on Tuesday, a comeback attributable to the new omicron subvariant.


The Loonie closed 0.17% higher in the previous session before extending its gains on Wednesday morning amid an improved market mood and oil price rise. On the data front, In January 2022, the average weekly earnings of non-farm payroll employees in Canada increased 2.5% year on year to CAD 1,161.58. It was the seventh month in a row that average weekly wages increased. Meanwhile, the Bank of Canada is likely to raise interest rates by 50 basis points at its April 13th meeting, and by another 200 basis points this year, after raising borrowing costs for the first time since March 2020. In addition, energy and commodities stocks climbed, led by oil and natural gas, as investors remained skeptical of a war conclusion. Brent crude increased by 1.1% to $111.43 a barrel. Elsewhere, the S&P/TSX Composite Index recovered from yesterday's losses and closed 0.5% higher on Tuesday, as Russia-Ukraine peace talks progressed.


The Mexican Peso closed 0.68% higher yesterday against the greenback before extending its gains on Wednesday morning as investors regained confidence in risky assets amid improved market sentiments. On the domestic front, President Andres Manuel Lopez Obrador is seeking a direct vote to replace Mexico's electoral regulators and justices, escalating a long-running battle with independent groups that he perceives as constraining his power. In other news, Avocado prices have risen to their highest level in more than two decades due to dwindling supplies in Mexico, the world's largest supplier of the fruit, indicating that guacamole will become more expensive. Companies are already suffering the effects of increasing prices. According to First Watch Restaurant Group, its costs are approaching the upper end of its expectations.


The Chinese Yuan closed marginally lower in the previous session against the greenback. The Chinese Yuan rose against the U.S. dollar today as investors flocked to battered growth stocks on hints of progress in Russia-Ukraine ceasefire talks. Furthermore, investors have speculated on a potential policy bottom for Chinese stocks after Beijing committed to calming financial markets and expanding economic support. Meanwhile, China's zero-tolerance stance on the virus adds uncertainty to the economy's future, making it even more difficult for the government to meet its 5.5% GDP growth target this year. Economists anticipate that momentum will pick up in the second quarter as a result of monetary, fiscal, and property leasing, as well as a more realistic approach to viral epidemic containment. In other news, the Shanghai Composite rose 2% on Wednesday, while the Shenzhen Component rose 3.1%, driving gains in key Asian markets.


The Brazilian currency closed 0.42% down again this Tuesday against the greenback. Apparently, the currency tries to consolidate its gains, while the market accompanies the new round of direct negotiations in Ukraine and Russia. Meanwhile,  the prospect of a slowdown in the U.S. economy is due to higher interest rates in 2023, which could limit the extent of the emerging currency rally, including the Real. Elsewhere, In the local scene, we have the publication of the IGP-M and the Foreign Exchange Flow, both must have little impact on the currency's trajectory. Having said that, the unfolding of the war in Ukraine will continue to be the highlight of the session and the main driver to be monitored.


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