USD

The U.S. dollar rose 0.31% against a basket of major currencies on Tuesday. It also strengthened against most developed (i.e. NZD, AUD) and emerging market currencies like the Colombian Peso, Turkish lira, and South African rand. The dollar’s advance was catalyzed by comments from U.S. Treasury Secretary Janet Yellen, who said that interest rates will likely have to rise as government spending ramps up and economic growth accelerates. As a result, the 10-year US Treasury yields climbed to 1.62% from 1.58%. Looking ahead, further USD appreciation will be contrasted with the increasing USD short position that the market continues to build. Highlighting today’s economic docket, April’s ISM services PMI is set to show a modest increase in the sector. The monthly ADP employment report should also drive attention as it is likely to show improvements in the job market.

EUR

The single currency slid 0.42% against the U.S. dollar on Tuesday, after commentaries from U.S. Treasury Secretary Janet Yellen showed signs of jitters over rising prices, sparking speculation of a market bubble. As a result, investors exited from riskier assets and switched to the USD and government bonds. Looking ahead, the European Union is set to announce new rules today that would prevent foreign state-funded companies from undercutting their rivals in the EU. The legislation is the latest sign of Europe’s shifting stance toward China. At the same time, the EU is also considering a U.S. proposal for countries to coordinate to counter what the White House sees as China's economic coercion. If all proposals are approved, fresh diplomatic tensions may arise, as well as triggering side-effects on the European economy as China is the bloc’s biggest trading partner for goods and a crucial market for its exporters.

GBP

The Pound edged 0.19% down against the U.S. dollar on Tuesday despite seeing upbeat domestic data. The final Manufacturing PMI was 60.9 in April, up from 58.9 in March, registering a further acceleration in the rate of expansion of the U.K. manufacturing sector. The positive reading was mainly driven by further loosening of Covid-19 restrictions across Britain and abroad, which led to another marked growth spurt at U.K. factories. Looking ahead, market participants are speculating about the potential political risk impact on the GBP, ahead of this week’s local and Scottish elections, as well as wondering whether the Bank of England will revise its forecasts higher at Thursday’s monetary policy meeting.

JPY

Yesterday was another quiet session, thanks to ongoing holidays in Japan and China. However, in the offshore markets, the U.S. dollar rose 0.25% against the Japanese yen, supported by 10-year US Treasury yields climbing to 1.62% from 1.58%. Looking ahead, the Bank of Japan will release the minutes from the latest policy meeting, and the Services PMI for April is also expected later today. Japanese markets remain closed due to a bank holiday.

CAD

The Loonie ran out of steam against the greenback on Tuesday, inching down 0.22% interrupting a fourth straight session of gains. The relatively weak domestic data might have spurred this weakness after Statistics Canada revealed that Canada registered an international merchandise trade deficit of C$1.1 billion in March. This reading came in worse than the market expectation for a surplus of C$0.7 billion and allowed the USD to climb over the CAD. Looking ahead, the USD/CAD pair will trade based on expectations around the important employment figures from both countries that will come out on Friday. Commodity prices keep going up and remain in the background.

MXN

The Mexican peso rate was subdued (-0.32%) against the U.S. dollar as concerns over political issues in Colombia weighed on market sentiment across Latin American countries. Also, recent remarks from Treasury Secretary Janet Yellen shook up the FX market when she said interest rates may have to rise moderately to keep the U.S. economy from overheating. The mere suggestion that the Fed might have to unpin rates from near zero, provided interesting support to the USD and weighed on the MXN. Looking ahead, in the absence of material stats, the MXN will be driven by international headlines, as well as surging expectations around Mexican elections in June.

CNY

Chinese markets were closed on Tuesday due to a national holiday. The light volume seen in the offshore market is attributed to the long holiday in the country, prompting the CNY to trade unchanged. To keep one eye on, China is right now regularly sending planes into Taiwan’s airspace, suggesting a serious escalation in cross-strait military tension not seen since 1996.

BRL

Yesterday, the Brazilian Real closed 0.10% lower against the greenback, reflecting the firsts investigations developments into how President Bolsonaro dealt with the devastating Covid-19 crisis in the country. Also, a wave of violence in Colombia sparked fears across the region that soured the market sentiment. In contrast, offsetting some of the pessimism, as well as constraining the BRL’s losses, investors priced in a large interest hike by Brazil’s Central Bank (BCB). Looking ahead, BCB will meet later today in order to set basic interest rates (Selic). With inflation rising over the last few months, market players are expecting the Selic to rise from 2.75% per year to 3.5%, favoring the BRL.