Daily Market Pulse
Dollar opens defensive amid cautious optimism7 minute read
Risk sentiment is still positive moving into the European session, while there is some sense of caution about more Western penalties against Russia for its atrocities against Ukrainian citizens. The U.S. dollar index closed 0.38% higher on Monday before opening with a defensive position this morning, amid cautious optimism. In the most recent effort to punish Russia, the United States barred the Russian government from paying holders of its sovereign debt more than $600 million from reserves held by American banks. In the market, sentiment remains clouded, with U.S. stock futures little changed in Asian trade on Tuesday following a Wall Street-driven gain led by technology stocks. Moving forward, investors will be watching for the February Goods and Services Trade Balance, the March ISM Service PMI, and comments from a bevy of Fed policymakers. Traders, on the other hand, will stay focused on Ukraine updates.
The Euro closed 0.63% lower on Monday before consolidating its steep losses this morning. The Euro fell in the first trading week of April, closing in on a nearly 2-year low as investors worried about the bloc's economic prospects in the midst of the Ukraine conflict and rising inflation. Following reports of civilian massacres in the Ukrainian town of Bucha, the European Union intends to impose more sanctions on Moscow, and leaders from Germany and Italy have suggested that the EU consider halting Russian gas imports. Meanwhile, the S&P Global Eurozone Composite PMI was revised to 54.9 in March 2022 from a preliminary estimate of 54.5, slipping just marginally from the five-month high of 55.5 in February. The services sector drove growth, with output rising faster than in February. In April, however, investor morale in the Eurozone sank to its lowest level in over two years, according to a study. In the markets, European stocks climbed, with the Stoxx Europe 600 index nudging higher as investors assessed the likelihood of tougher sanctions against Russia for alleged crimes during the Ukraine conflict.
The British Pound closed 0.02% higher followed by consolidating its gains on Tuesday morning. The British Pound fell as investors awaited the West's response to the war crimes in Bucha, Ukraine, following the release of March PMI final estimates. In terms of facts, new automobile registrations in the United Kingdom declined 14.3% year on year to 243,479 units in March 2022, the lowest for a March month since 1998, as manufacturers failed to provide the latest, lowest pollution vehicles owing to chip shortages. Meanwhile, in the United Kingdom, the government is considering divesting the state-owned broadcaster Channel 4, as well as other reforms in the industry, which may result in an additional £0.75 billion to £1.20 billion in revenue for the Treasury. In other news, the FTSE 100 fell in a choppy European session on Tuesday, as investors continued to assess the Ukraine War scenario.
The Japanese Yen closed 0.20% lower in the previous session against the greenback. The Yen rose on Tuesday as a result of comments from Bank of Japan Governor Haruhiko Kuroda, who stated that the Bank of Japan's recent movements are relatively quick. However, the Yen has been the worst performance in the Group-of-10 currency basket this year. Meanwhile, the Jibun Bank Japan Composite PMI was at 50.3 in March 2022, up from a flash reading of 49.3 and a final 45.8 a month earlier. This was the first increase in private sector activity since last December, with manufacturing production rising again while services firms saw a far weaker decrease. In other news, the Nikkei 225 Index climbed 0.2% on Tuesday, but the wider Topix Index dipped 0.2%, as Japanese shares battled for gains despite an overnight rise on Wall Street, as investors became concerned about the corporate outlook.
The Loonie closed 0.27% higher in the previous session before extending its momentum on Tuesday morning. The Canadian currency appeared to be approaching its highest level since November 2021, on expectations that the Bank of Canada (BoC) will begin raising its benchmark interest rate in 50 basis point increments to contain inflation, which is at levels not seen since 1991. The central bank has not raised interest rates by that much since May 2000, as investors awaited the release of two Bank of Canada surveys that could provide insight into the inflation forecast. Also, Crude oil prices have risen, adding to the bulls' optimism, as the release of strategic reserves by Western nations has failed to alleviate supply concerns. Having said that, Brent crude increased 0.9% to $108.47 per barrel in the day. In other news, the S&P/TSX, Canada's main stock index, closed 0.6% on Monday, barely shy of its all-time high set on March 29th, driven by advances in technology, energy, and healthcare stocks.
The Mexican Peso closed 0.27% higher yesterday before losing its momentum on Tuesday morning. The Mexican Peso fell as investors weighed the likelihood of stronger sanctions against Russia in the crisis. On the other side, increased commodity prices and interest rates continue to strengthen the Mexican Peso, giving bulls hope. In March, the Mexican central bank raised interest rates for the seventh time in a row, to 6.5%, in an effort to alleviate inflationary pressures caused by the Ukraine conflict. Nonetheless, inflation hit 7.3% in February, and the economy narrowly avoided a recession at the end of last year. Elsewhere, A significant opposition group in Mexico for President Andres Manuel Lopez Obrador's quest to enact a nationalist electricity bill would vote against it, decreasing the likelihood of the constitutional revision passing.
The Chinese Yuan closed flat in the previous session against the greenback as the Chinese market remained closed due to the Ching Ming festival. Meanwhile, in the latest reports, The Yuan appears to be under pressure as sluggish manufacturing activity and the economic consequences of Covid lockdowns have boosted expectations of additional policy easing. The Caixin China General Manufacturing PMI dipped to 48.1 in March, down from 50.4 the previous month, as the country confronts its most severe Covid-19 outbreak since the pandemic began. The weakening of China's economy strengthens the case for additional policy easing, with many predicting a reduction in the reserve requirement ratio in the second quarter. The likelihood of greater monetary easing at a time when global central banks are raising interest rates could possibly drive capital outflows and weaken the Yuan further.
This Monday, the Brazilian currency returned to gains, with an appreciation of 1.33% against the greenback. The beginning of the week was positive for the currencies of exporting raw materials countries, with the Real also benefiting from the narrative of high domestic interest rates. Meanwhile, although the Central Bank of Brazil suggested that the Selic terminal rate would be around 12.75% per year, some banks are envisioning the Selic rate at 14% in December. so that this projection comes true, the municipality should carry out additional rate increases in May, June, and August. The main rationale behind this view is persistent double-digit inflation, driven by fuel and food prices. Elsewhere, it is evident that the Real is surfing the commodity price boom and high-interest rate differentials, however, the consolidation and support of the currency at current levels will depend on the fiscal adjustments that the next president will carry out, as well as the results of the monetary policy.