Daily Market Pulse

Dollar’s on track for a straight third-month gain

5 minute read


Markets remain relatively muted mid-week as investors await the inflation data from the Eurozone. After closing the second straight day virtually unchanged on Tuesday, the U.S. dollar Index continues to move sideways this morning. Still, the dollar is on course for a third consecutive monthly rise, supported by robust expectations that the Federal Reserve will keep interest rates up until inflation returns to its target range. On Tuesday, New York Fed President John Williams echoed similar hawkish  sentiments in an interview with Wall Street Journal. Futures on U.S. market indexes are up more than 0.5%. The ADP's latest private-sector employment report will be closely monitored in the second half for further momentum.


The Euro managed to stay above parity on Tuesday, posting minor daily gains (0.22%) before advancing moderately in today’s morning session. Several European Central Bank (ECB) officials expressed willingness to consider a 75 basis point rate hike in September, helping the common currency regain momentum. In addition, traders are now eyeing the Annual Harmonised Index of Consumer Prices (HICP) in the Eurozone, which is predicted to grow to 9% in August from 7.9% in July. Meanwhile, the Nord Stream pipeline has been shut down for three days for maintenance, leading to a complete suspension of gas deliveries to Europe and a spike of 5% in natural gas futures for the day.


The British Pound dropped by 0.55% on Tuesday, but it recovered some of its losses early Wednesday. The sustained hawkish stance by the Fed is undermining the Sterling. On the other hand, as the cost of living problem develops, multiple bearish fundamentals push the British Pound lower. The latest round of bearishness began when the Bank of England issued a dismal forecast for the UK economy. A string of poor data has since followed. The pressure on UK families from rising food and energy prices has driven holders of the Pound to the exit door. In other news, Rishi Sunak, the underdog in the UK Conservative leadership election, has warned that the next prime minister faces the risk of markets losing confidence in the British economy.


Following a 0.04% decline versus the U.S. dollar on Tuesday, the Japanese Yen began to edge higher today, supported by upbeat economic data. Retail sales in Japan climbed by 2.4% annually in July 2022, beating the market consensus of 1.9% and following a 1.5% increase the previous month. The current result recorded the sixth consecutive month of growth in retail commerce, as consumption improved following the Covid impact. Additionally, the consumer confidence index in Japan rose to a three-month high of 30.2 in August 2022, up from an 18-month low of 30.2, as the Covid situation improved considerably, with the government already easing all pandemic restrictions.


With crude oil prices plummeting over 5% on Tuesday, the commodities linked Loonie gained bearish momentum and fell 0.63% before consolidating its losses on Wednesday. Later in the day, Statistics Canada will issue second-quarter GDP statistics, which is projected to show that the Canadian economy expanded at an annualized pace of 4.5% in the second quarter.


The Mexican Peso pulled back 0.66% versus the greenback yesterday and appears to be continuing its downward trend this morning. The significant drop in crude oil prices weighs on the Peso. West Texas Intermediate crude futures settled at $92 per barrel on Wednesday but were still on course to fall for the third consecutive month due to a weaker demand forecast as major central banks raised interest rates aggressively, threatening global growth. In other news, the Mexican unemployment rate fell to 3.4% in July 2022 from 4.4% the previous year, above estimates of a 3.5% figure.


The Chinese Yuan regained momentum after closing 0.06% lower against the U.S. dollar yesterday. Earlier in the day, Chinese data indicated that the NBS Manufacturing PMI increased to 49.4 in August from 49 in July. Furthermore, the Non-Manufacturing PMI was 52.6, exceeding the market expectation of 52.2. Despite the optimistic figures, the Shanghai Composite Index has recently lost roughly 1% daily.  Moreover, investors became increasingly concerned about a long-term downturn in the Chinese economy after authorities implemented stricter coronavirus-related restrictions in cities such as Shenzen, Chengdu, and Dalian.


In yesterday's session, the Brazilian Real plunged over 2% amid the strong hawkish sentiments from U.S. policymakers. Global markets took a negative turn after statistics revealed that U.S. consumer sentiment regained more than expected in August and job openings increased in July. Both figures should keep the Federal Reserve on its aggressive tightening monetary policy course. In the local scenario, markets track the inflation trajectory to forecast the Central Bank's upcoming interest rate moves. On the political front, a new poll shows that leftist Luiz Inacio Lula da Silva's lead against current far-right President Jair Bolsonaro has fallen marginally ahead of Brazil's October election.


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