Daily Market Pulse
Dollar pauses ahead of FOMC minutes5 minute read
The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, edged marginally higher (0.18%) as the bearish momentum eased, following an illiquid session with U.S. Markets closed due to the holiday of the fourth of July. However, fundamentals remain unchanged with refreshed optimism during the early hours of today's session, with the Index consolidating at lower levels. While the USD sustains the bearish trend, now the focus is on ISM manufacturing PMIs for June which are expected to release 63.5 vs 64 in May, slightly lower than the previous month but expected above the 50-point mark suggesting fast pace expansion. However, if the data exceeds expectations we could witness a shift in narrative as inflation would start stealing the show, suggesting a change in trend for the greenback.
The EUR remained virtually unchanged (+0.01%) against the dollar following a quiet Monday trading session with U.S. markets closed for the holidays. However, Eurozone PMIs outperformed expectations, releasing 58.3 vs 58 previously anticipated, aiding the EUR to remain perky. Today we expect the ZEW Survey - Economic Sentiment to provide an update on the business morale in the old continent, which is expected to pick up from its previous release from 81.3 to 84.4 in June. Additionally, Eurozone Retail Sales are due at 8.2% year-over-year growth, slowing down from the previous 23.9% due to easing lockdown measures.
Sterling edged 0.11% higher against the dollar amid low trading activity as the U.S. market remained closed for the holidays. The U.K Prime Minister Boris Johnson confirmed once again his intentions to lift most of England’s COVID-19 restrictions by the 19th of July, and Britons should expect the final announcement on the 12th of July. Government officials are confident that the high inoculation ratios will combat hospital admission after lifting remaining measures. On the data front, U.K Markit Services PMIs for June beat expectations releasing 62.4 vs 61.7 anticipated, adding to the Sterling momentum suggesting fast-paced expansion. Today, we expect Markit construction PMIs at 63.8 vs 64.2 previously released.
The Japanese Yen remained unchanged against the dollar as the U.S. market remained closed for the fourth of July bank holiday, easing the pace of the general sell-off of the greenback after Non-Farm Payrolls on Friday last week. However, the pair is being driven by U.S. developments which has now turned its focus into upcoming PMIs and Federal Open Market Committee (FOMC) minutes to be released on Wednesday, expected to hint at the timing of any upcoming adjustment in monetary policy. On the data front, the JP Foreign Reserves for June which will be released later today are expected to have little or no effect on the valuation of the Japanese Yen against the dollar.
The Loonie retraced 0.19% following an ease down in the USD sell-off momentum and the OPEC failing to reach an agreement on the output quotas, postponing the meeting. The West Texas Intermediate (WTI) jumped 2.3%, reaching USD 76.91 per barrel recording the highest prices in six years, after OPEC + failed to secure an agreement to set an increase in oil output in August, concerning market participants that the recovering global economy won’t increase the supply as fast a demand record from the pandemic. Despite the surging prices in Crude oil, the CAD has struggled to secure support mainly due to the uncertainty around the OPEC + negotiations, which last year sent the oil crashing after an irresponsible price war among its members. Additionally, the Bank of Canada Business Outlook survey released positive results reflecting high morale and optimistic views helping CAD sustain the current prices.
The Mexican Peso is down 0.1% amid reduced liquidity tied to the U.S. Fourth of July holiday. The OPEC fallout, which spiked the price of WTI crude oil, supports currencies for the likes of MXN, making it one of the favorite bets following the attractive carry offered by interest rate differentials and a hawkish view from central bankers. Additionally, CFTC data showed that investors cut their bearish Mexican Peso positions for the first time in four weeks, suggesting that a renewed momentum could resume the broader rally of the Peso. Today, no headlines or data releases are scheduled in the economic calendar, so we expect the market to follow the broader risk sentiment.
The Chinese Yuan advanced 0.08% against the dollar amid investor caution due to illiquid conditions, with upcoming Fed minutes on Wednesday and China’s June inflation data to be released on Friday. While market participants patiently work their way through these releases, we expect risk sentiment to drive any price action or to consolidate positioning based on expectations. Analysts believe that the weakening price growth in the service industry once again underlines the muted transmission of PPI to service CPI, suggesting limited CPI inflationary pressures and therefore unlikely that the Peoples Bank of China (PBoC) would rush to tighten monetary policy.
The Brazilian Real fell for the fifth straight session, recording 0.93% losses against the greenback amid political woes and corruption concerns weighing on the currency. Despite the recent roaring economic data, President Jair Bolsonaro was involved in a scheme to skim the salaries of his aides while a federal deputy. The news comes after the Supreme Court approved an investigation on Bolsonaro's procurement of COVID-19 vaccines. The recurring corruption scandals start to weigh on Bolsonaro’s popularity. However, BRL continues to be one of the best-performing currencies in Latam, driven by strong data and hawkish Brazilian Central Bank (BCB).