The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies, rallied 0.25% after Fed speakers talked up tapering and disappointing ADP job results hinted at mixed Nonfarm payrolls later on this Friday. Federal Reserve Vice-Chair, Richard Clarida, shared in a speech yesterday that he sees an announcement about tapering the bond purchase program before the end of the year, and highlighted risks around his inflation outlook to the upside. The spokesman flagged that sustained inflation above 3% annualized would be considered more than just transitory and that a jobless rate of 3.8% would be considered low for policymakers to adjust monetary policy. Additionally, Mary Dale, a usual dove from the San Francisco Fed, echoed Clarida by saying that the Fed could ease its purchases as early as this year. The U.S. dollar gained against most of its peers amid expectations of fewer dollars printed in the future. Treasury Yields advanced once again amid Fed official's interventions, while stock markets declined in response to hawkish comments suggesting a reduction in stimulus. Mixed U.S. data kept markets indecisive as ADP Employment Change failed to impress, posting 330k vs 695k previously anticipated and 680k previously released. ISM Services PMIs, on the other hand, exceeded expectations releasing 64.1 vs 60.4 forecasted. Coming up, U.S jobless claims will provide further insight into what we might expect on tomorrow’s nonfarm payrolls, while Fed Governor Christopher Waller is due to speak later on today.
The common currency fell 0.18% against the dollar amid Fed officials hinting at tapering before the end of the year and mixed Eurozone data releases throughout the course of the trading session. European Markit PMI figures failed to impress, with Services reading posting 59.8 vs 60.4 expected, while the Composite 60.2 vs 60.6 forecasted. Retail Sales reading suggested a slowdown in June, posting 1.5% vs 1.7%, although annualized figures came out upbeat with a solid 5% year over year vs 4.5% previously anticipated. Additionally, German Factory Orders, which were released earlier today, posted a soft 26.2% annualized change while market participants expected 67.5%, and May figures were revised up 0.6%.
The British Pound edged 0.28% lower against the greenback following the latest hawkish interventions from Fed officials suggesting tapering before 2021 ends. Furthermore, market participants turn their focus to the Bank of England and its Monetary Policy Committee meeting, which is due to take place today and will conclude with a speech by Andre Bailey, Governor of the BoE, addressing interest rate decisions and providing his monetary policy statement. The British policymakers are set to leave monetary policy unchanged and to publish renewed forecasts which will help set better expectations. Vote results in the asset purchase facility will also be followed closely as participants are expecting Michael Saunders to be the only member to support the reduction of the £895 billion programs. However, in the case of another member joining his efforts, the Pound could rise, but otherwise, caution would weigh on Sterling.
The Japanese Yen closed 0.43% lower against the dollar, amid Fed officials providing hawkish declarations and U.S. treasury yields spiking, which weighed on the Yen. Disappointing ADP private employment figures sent the greenback to the downside, reaching a two-month low during the session. However, comments by the Fed’s Vice-chair triggered a sharp bounce back, after saying that the economy could warrant interest rate hikes by early 2023 and that there could be a tapering announcement before the end of 2021. The greenback trimmed its losses against most of its peers, pushing Treasury yields above the 1.20% mark. Later today, Overall Household Spending will be the most relevant piece of data we expect from the Ministry of International Affairs and Communications.
The Loonie remained relatively unchanged against the greenback, reporting a depreciation of 0.06% during yesterday’s trading session. The Candian dollar remains on the backfoot amid falling crude oil prices, which made it difficult for the commodity-driven currency to find some traction in demand. The West Texas Intermediate (WTI) extended losses by another 3.09% and broke the USD 70 psychological levels as renewed concerns over the spread of the delta variant hurting the energy demand recovery in China continue to weigh on crude oil prices.
The Mexican Peso retraced 0.47% during yesterday’s trading session against the dollar, amid falling Crude oil prices and Gas distribution strikes over price ceiling controls. As concerns over the spread of the virus keep hurting the energy demand recovery in China, which transmitted to lower crude oil prices, the National Gas Union, a group of small private and independent liquid petroleum gas (LPG), began an indefinite strike in the various Mexican States in rejection to the price ceiling imposed by the Federal government. The commodities-linked Peso fell amid the souring news, and this was aided by hawkish Fed officials' interventions hinting at tapering before the end of the year.
The Chinese Yuan remained relatively unchanged (-0.02%) against the dollar amid Covid tensions mounting in different parts of China due to reports of additional cases. China has imposed new travel restrictions in addition to massive testing in Wuhan and Beijing, which continue to accentuate concerns about growth, piling onto China’s regulatory crackdown, which now aims for the gaming industry and is possibly looking to extend to other sectors such as alcohol consumption.
The Brazilian Real advanced 0.36% against the dollar, recovering mild losses from previous sessions amid global uncertainty and growing coronavirus cases in the U.S. and China. The Brazilian Economy Minister stressed that the government will not default on debt reparation payments while defending a reform that will stagger those payments in order to give more fiscal room to the government. Additionally, industrial production in Brazil stalled as the latest readings suggest that industrial production grew over 12% on a yearly basis, but the latest monthly figures suggest a stall in growth, posting 0%. However, the market mood remains upbeat in the early trading hours of today as the Brazilian Central Bank voted unanimously to increase the Selic rate by 100 bps to 5.25%, in line with market expectations. Policymakers remain concerned about inflation, noting that worse weather conditions have pushed food inflation and electricity tariffs higher, and this has driven the upside revision in the Bank’s short-term forecast from 5.8% to 6.5%.