Daily Market Pulse

Dollar weakens amid Omicron virus concerns

6 minute read


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, edged 0.26% higher on Monday’s closing session, followed by a downside movement starting on Tuesday's trading session, essentially erasing yesterday's gains. Today’s downtrend is due to declining U.S. Treasury yields and increasing concerns among investors about the newly discovered Covid-19 variant called the Omicron virus. On this note, Powell commented on Monday that increasing concerns over the new virus will develop more uncertainty in the economy ahead around employment and inflation, further undermining the dollar index. In the economic data released today, the FAFH house price index release will be followed by the S&P Shiller index and Chicago PMI. In addition to this, Powell will testify on the Coronavirus and CARES act, followed by speeches from both permanent voters NY Fed J. Williams and Vice-Chair R. Clarida. The 10 years U.S. Treasury bond yields have fallen by 2% and the U.S. stock futures index is trading in negative territory early today, indicating that the market is in a risk-averse mood. 


The Euro suffered 0.23% against the greenback on Monday’s closing, followed by a modest comeback entering the trading hours of Tuesday. The mild gains in Euro are due to the cautious market mood owed by the sluggish U.S. Treasury yields. In the meantime, European Central Bank’s governing member De Cos mentioned that although the inflation reading last month was higher than expected, policymakers are avoiding premature tightening of monetary policy as the inflation is transitory. On the other hand, De Guindos mentioned that the increase in the spread of the Omicron virus will cause uncertainty over the economic outlook. Germany’s inflation figures, released yesterday, jumped to a record high of 6%. Market participants are now waiting for the Eurozone Consumer Price Index (CPI) data for November, expected at 3.7%, to provide fresh impetus to the Euro. 


The Sterling retreated 0.16% against the greenback during Monday’s closing, followed by fresh buying in the early hours of Tuesday during the European session to reach near one-week high levels. The uptick was sponsored by a cautious tone amongst market participants and by the sharp decline of U.S. Treasury yields. On the other side, the UK-EU impasse over Northern Ireland Protocol and French-UK fishing rights post-Brexit can act as a headwind for Sterling, limiting any sharp gains. Market participants, in absence of any economic data release, will take cues from broader market sentiments and U.S. data release later today to provide fresh impetus for the Sterling. 


The Japanese Yen suffered 0.13% against the U.S. dollar on Monday’s closing, following a whopping gain in the previous session. The Yen regained its uptick in the early hours of Tuesday and continued to surge, sliding the USD/JPY pair down to a near three-week low. The upbeat momentum is due to the sluggish tone around USD and Equity markets, boosting demand for the yen against the dollar. On the same note, the bearish tone piqued due to a slide in U.S. treasury yields, which further provided strength to the Yen. Market participants are waiting for the U.S.’s economic data release, which will highlight the conference board Consumer Confidence Index and Powell’s testimony before the Senate Banking. This will shed light on the Fed’s next move and provide fresh impetus for the currency pair.


The Loonie surged 0.39% against the greenback on Monday's closing, followed by modest gains during the early trading session on Tuesday. The latest drop in the greenback is attributed to a weakness in the U.S. dollar amid the discovery of a new Covid-19 virus variant. Later today, market participants await Canadian growth data amid OPEC+ headlines, as well as Fed chair Powell’s testimony on the CARES act and data release from the US economic docket, which will provide fresh momentum for the Dollar-Loonie currency pair. 


The Mexican Peso surged 1.12% against the U.S. dollar on Monday’s closing, erasing losses in the previous session. The USD/MXN fell sharply amid the weak Dollar sentiment caused by the new Omicron virus and a cautiously optimistic market mood. The Peso upside momentum came after comments made by the Fed mentioning uncertainty around employment and inflation, as well as by declining U.S. Treasury yields by 2%. Market participants are now waiting for economic data release from the US docket and Powell testimony for the CARES act and senate banking in the later today to get fresh cues for the Dollar - Peso dynamics moving forward. 


The Chinese Yuan surged by 0.08% against its counterpart dollar at the closing of Monday’s session, followed by modest upbeat traction in the early hours of Tuesday. The upbeat momentum is sponsored by China’s economic data release and weaker market sentiment around the U.S. dollar. China recorded a surprise growth in its factory activity for November, for the first time in the last three months, as the manufacturing PMI stands at 50.1 against the previous of 49.2, and the Non-manufacturing PMI sets at 52.3, marginally higher than the previous month. The positive economic data release combined with a weaker U.S. dollar provided tailwinds for the Yuan against the greenback. 


The Brazilian Real suffered 0.09% against the greenback on Monday's closing. This comes amid uncertainties regarding the new Omicron variant of the coronavirus. Until now, health authorities have stated that the new strain is more contagious than its previous Delta counterpart, but there is no evidence that it is more deadly. Later today,  we will have the publication of the Balance Sheet Budget, which is set to record a surplus of R$35 billion in October, compared to R$12.9 billion in the previous month. In addition, the IBGE (Brazilian Institute of Geography and Statistics) will publish the Unemployment Rate, which may have improved in September, from 13.2% to 12.7%. Both data figures should provide support to the currency. Additionally, market participants will be keeping an eye on GDP for the third quarter that will be released this Thursday, amid projections indicating that the economy has stalled or even retreated again. If the number comes in below market estimates, it might create downside pressure on the BRL. 


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