Daily Market Pulse

Dollar awaits job data for fresh momentum


After finishing 0.72% down yesterday and experiencing increased volatility earlier this week, the U.S. dollar index remained steady on Friday as investors got ready for a significant monthly job report that could influence future U.S. monetary policy. A surprise on either side might affect expectations for the Federal Reserve's next policy move. The U.S. non-farm payroll report for July is projected to come in at 250,000. Midway through July, there were rumors that the U.S. central bank might not hike interest rates as sharply as previously expected in order to prevent a recession. The dollar did, however, recover some of its losses after a number of Fed officials recently defied such forecasts by stating their intention to maintain raising rates until inflation declines.


Before losing momentum this morning in the face of a strengthening dollar, the euro recorded gains of 0.78% in the previous session. Following the announcement of Germany's Industrial Production data early on Friday morning in Europe, the euro reaches a new intraday low. Meanwhile, three countries on the other side of the globe—Japan, South Korea, and China—will play a significant role in Europe's internal effort to remain warm this winter. The peak heating demand season occurs throughout the winter in all of the Asian nations, which are among the major importers of liquefied natural gas and seaborne coal in the world.


The British pound fell in today's session after ending the previous one in the green (closing 0.1% higher), supported by the Bank of England's rate hike decision. Market moves came after the BOE raised its key rate by 50 bps to 1.75% during its August 2022 meeting, the sixth consecutive rate hike, pushing borrowing costs to the highest since 2009. Money markets currently anticipate a 25 basis point increase in September, with the central bank projecting an October 13.3% inflation peak. In other news, the Halifax house price index in the UK grew 11.8% year over year in July 2022, among other places. House prices decreased by 0.1%  from the previous month, the first decrease since June 2021.


Yesterday, the Japanese yen rose 0.68% against the U.S. dollar. The yen’s demand waned in today's session as investors await U.S. job data, which is crucial to the Fed's stance on monetary policy. At the same time, domestically, flash data revealed that the index of coincident economic indicators in Japan—which includes a variety of statistics such as factory output, employment, and retail sales—rose from a final 94.9 a month earlier to 99.0 in June 2022. This was the highest reading since September 2019, as COVID-19 conditions continued to improve following the government's relaxation of all travel restrictions related to the epidemic.


The Lonnie fell 0.15% in the previous session, and this morning it is still on a downward trend. The market's cautious optimism ahead of the crucial US/Canada jobs data for July may be a factor in the Loonie's most recent losses. Additionally, the Canadian dollar ignores the recovery in West Texas Intermediate crude oil prices from a six-month low, which is Canada's primary export good. While recovering from their lowest points since February, WTI crude oil prices increase 1.15% intraday, reaching $89.00 at the latest. Moving on, traders are anticipating the U.S. employment report, which is likely to flash comparatively weaker data, which in turn could defy the Fed hawks and act as a tailwind for Loonie.


The Mexican peso strengthened 0.64% versus the U.S. dollar yesterday and extended its upside momentum modestly this morning. The recent decision by the central bank of Mexico on interest rates is underpinning the recent upward momentum for the peso. Mexico's Central Bank kept its key interest rate unchanged at 7.75%. This action comes after the nation's interest rates were raised by a record 75 basis points on June 24 to bring them to their current levels as the apex bank tries to rein in rising inflation. The peso will be put to the test of its recent performance as the crude oil prices collapsed overnight due to a spike in U.S. crude oil inventories and an extra increase in the OPEC + alliance's output cap as the value of crude oil and the Mexican Peso are directly correlated.


The yuan muted against the dollar after closing 0.12% higher yesterday, but is expected to remain volatile as traders continue to monitor heightened tensions between China and the U.S. over Taiwan. Following U.S. House Speaker Nancy Pelosi's visit to Taiwan, China reportedly launched a barrage of ballistic missiles into the waters around the island as part of large-scale military exercises. Moving forward, the risk of escalation in the region is expected to keep markets on edge. Meanwhile, investors are looking forward to the release of July trade, inflation, and credit lending data in China next week to gain insight into the state of the world's second-largest economy.


The Brazilian Real closed the previous session with a steep 1.28% gain and is continuing to strengthen this morning. Investors weighed more corporate earnings and the latest Copom decision, which suggested the tightening cycle could end soon, to support the positive strength. Brazil's central bank raised its benchmark interest rate to 13.75% for the 12th time in a row, as expected, and said it would consider another rate hike of a smaller magnitude at its next meeting in September. Markets' attention has remained focused on rising interest rates in several economies in the face of soaring inflation, which has fueled fears of a global recession.


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