Daily Market Pulse

Dollar may end month lower

6 minute read


The dollar index gained on Tuesday after finishing marginally higher the previous day, but it is still possible to end the month lower as investors prepared for a slower pace of U.S. interest rate hikes and as fears of a worldwide recession have started receding. The Fed-preferred core PCE index fell to 4.9% year on year in April from 5.2% in March, indicating that price pressures may be moderating slightly. Consumer spending in the United States increased more than predicted in April, indicating that the economy is healthy despite price concerns. Investors have reduced their expectations for Fed rate hikes due to suggestions that the central bank may stall or possibly halt its tightening cycle later this year after rapidly boosting interest rates over the next two months. Aside from that, U.S. futures reversed their earlier gains and oil surged this morning.  Moving forward, The U.S. economic calendar will include the March Housing Price Index and Consumer Confidence data from the Conference Board. Additionally, U.S. President Joe Biden will also meet with FOMC Chairman Jerome Powell to discuss the economy and inflation.


The common currency reversed its course and fell after reaching its highest level since late April on Monday, closing 0.46% higher. In terms of data, the Euro zone's economic sentiment indicator (ESI) was slightly changed at 105 in May 2022, up from a downwardly corrected 104.9 in April and compared to market forecasts of 104.9. As soaring inflation and the ongoing crisis in Ukraine continue to weigh, general confidence remains at levels not seen in a year. Additionally, In the EU, industrial confidence fell for the third month in a row, with managers' estimates of the current level of total order books showing the greatest decline in two years. In April, HICP inflation in the eurozone is predicted to grow to 7.7% year on year. 


The British Pound closed yesterday with 0.22% gains, marking the fifth consecutive trading day in positive territory, but lost traction on Tuesday morning amid market caution. Investors are still wary about the need to raise interest rates faster, despite a slew of inflation statistics from European countries such as Germany, France, and Spain coming in above market estimates. Meanwhile, the UK struck its first trade pact with a U.S. state, despite warnings that Prime Minister Boris Johnson's Brexit stance is hindering progress on a bigger accord with Joe Biden's administration. In other news, the FTSE 100 traded slightly higher at about 6-week highs on Tuesday, extending gains for the fifth consecutive session and outperforming its European rivals as advances in the oil and gas industry outweighed concerns about rising interest rates. Later in the day, the Bank of England will release the Consumer Credit Change for April.


The Japanese Yen closed 0.33% down and continues to edge lower this morning amid revived strength of the U.S. dollar. In the latest data release, Retail sales in Japan increased by 2.9% year on year in April 2022, beating the market forecast of 2.6%. The most recent data reflected the second consecutive month of growth in retail trade and the fastest rate since May 2021. In addition, Japan's consumer confidence index rose to 34.1 in May 2022 from 33.0 the previous month. The most recent reading was the highest since February after the government lifted the quasi-state of emergency in late March in response to a decrease in new Covid infections and increased immunizations. Even as consumer confidence and retail sales improved, the Yen failed to capitalize and stays undermined against the greenback. 


The Loonie advanced 0.54% in the previous session before retreating this morning as the greenback regained its positive momentum. Meanwhile, Canada posted a current account surplus of CAD 5.03 billion in the first quarter of 2022, up from a downwardly corrected shortfall of CAD 0.14 billion the previous quarter, and outperformed market forecasts of a CAD 3.2 billion surpluses. It was the highest surplus in nearly 14 years, powered by the widest net positive goods account since the 2008 financial crisis, as rising crude oil prices boosted Canadian goods exports despite lower volumes. Later today, investors are looking forward to GDP numbers, which are estimated to be 5.4%. Furthermore, investors will be watching the Bank of Canada's rate rise decision tomorrow, where the central bank has already signaled that it will remain hawkish.


The Mexican Peso surged 0.46% in the previous session before losing its momentum this morning amid the risk aversion in the markets. Meanwhile, Mexico's gasoline and diesel subsidies now cost the government more than twice as much as the extra profit the oil company receives from higher crude prices. Subsidies for gasoline and diesel are predicted to be roughly $2.39 billion in May, owing to a global fuel price increase, while the windfall from the state-owned oil company's crude exports is expected to be less than half that amount, at $1.04 billion. This leaves the Finance Ministry with a fiscal cost of almost $1.35 billion just this month as the government strives to meet President Andres Manuel Lopez Obrador's vow to curb domestic fuel price rises. Coming up, traders will see the Jobless rate from the Mexican economic docket for fresh impetus. 


The Chinese Yuan closed 0.54% higher against the greenback in the previous session. On Tuesday, the yuan fell against the dollar as better-than-expected factory manufacturing statistics and Shanghai's exit from a two-month Covid lockdown failed to counter investor concerns about a protracted economic downturn. Factory activity slowed in May as Covid limitations in major manufacturing hubs were loosened, but mobility controls continued to dampen demand and disrupt output, weighing severely on the economy in the second quarter. Elsewhere, the Shanghai Composite rose 1.19%, while the Shenzhen Component rose 1.92% on Tuesday, extending gains from the previous day, as investors celebrated news of Shanghai's expected reopening and the lifting of Covid restrictions across the country.


The Brazilian Real fell 0.91% on Monday, with market players pointing to liquidity distortions caused by a holiday in the United States and the impending establishment of a significant exchange rate in the domestic market. Overseas, risky assets did well yesterday on the back of the anticipation of a gradual restoration of activity in Chinese cities following weeks of stringent restrictions to battle Covid-19. Domestically, FGV said that the General Price Index – Market (IGP-M) rose 0.52% in May, reaching 10.72% in a year. In May, business confidence reached its highest level since October of last year, while services confidence increased for the third month in a row.


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