Daily Market Pulse

The U.S. economy is rebounding rapidly

5 minute read


The greenback failed to break the 93-level and hit a two-week low against a basket of major currencies after U.S. bond yields retracted as investors reduced expectations that the Federal Reserve will tighten its policy earlier than pledged. Meanwhile, labor market data showed job openings rose to a two-year high in February, led by gains in some of the industries hardest hit during the pandemic, suggesting that the U.S. economy is rebounding rapidly. Elsewhere, investors will be eagerly awaiting the minutes of the U.S. Federal Reserve's policy meeting later today. Moreover, several Fed members are due to give a public speech today, with voters Evans and Barkin probably the most interesting.


The single currency rose 0.48%, extending previous gains over the greenback while European stocks also rose to a record high, on Tuesday. In general, investors looked past the region’s slow pace of vaccinations and focused on prospects for a global economic recovery. Cyclical stocks such as miners and automakers led the advance, while travel and leisure stocks also rose. On the economic data front, Eurozone Services and Composite PMI will be released later today while investors will eye minutes of the March U.S. Federal Reserve meeting, with policymakers updating their views on the interest rate.


The Cable gave back gains from the day before, sliding 0.6% on Tuesday after sturdy U.K macroeconomic data have boosted investors’ risk appetite, aiding shares and emerging-market assets. Yesterday, the U.K. began rolling out the Moderna Inc. vaccine, bolstering Britain’s Covid-19 immunization program amid concerns over AstraZeneca’s shot and a shortfall of doses this month. For today, market participants will wait for Services PMI and House Price Balance, both from March. No revisions from the prior ‘flash’ estimates are expected, nonetheless, evidence of an inflationary surge in the near term will be sought.


Once more, the JPY printed gains (+0.34%) against the U.S. dollar as the U.S. bond markets paused after a month of rapid gains. Strong economic data from China and the United States, were the major drivers on Tuesday, influencing investors to switch their positions to riskier assets, but also lifting the bond sell-off. On that note, the yield on benchmark 10-year U.S. Treasuries fell to 1.6986%. Today, Coincident Indicator and Leading Index, both from February, will drive some attention. Also, investors will pay attention to minutes from the March U.S. FOMC meeting, where policymakers will bring new prospects for the interest rate.


The Canadian dollar gave back some of its recent gains after closing down 0.36% against the greenback on Tuesday. Future oil prices rebounded towards the $60/barrel psychological level, but this move failed to provide additional support for the Loonie. Furthermore, Treasury yields also did not help as they continued to move lower in tandem with the U.S. government bonds. Looking forward, Canada's trade report for February and Ivey PMI are due today. Both releases could offer clues on the Bank of Canada's policy outlook.


Oil prices rebounded on Tuesday on the prospects for stronger global economic growth, providing important support to the MXN, which rose 0.73% against the greenback, touching its highest level in more than six weeks. Meanwhile, Consumer Confidence in Mexico rose to 40.4 in March from an upwardly revised 38.8, reaching the highest level since March 2020, reported Instituto Nacional de Estadística y Geografía (Inegi) on Tuesday. The increase was due to the improvement in the economic situation perceived by the members of a household, compared to the previous 12 months. Today, there is no significant data to be published, thus the MXN may be driven by external factors. 


The Chinese yuan rose 0.42% and touched a one-week high against the U.S. dollar on Tuesday, as the greenback retracted in global markets. Recent figures showing that overseas investors holding Chinese bonds decreased their position in March did not help the CNY, as rising U.S. yields and a weaker yuan have dampened the appeal of Chinese government bonds in recent weeks. Looking ahead, the massive stimulus package in the U.S. should keep the USD relatively strong in the long run to pile some downside pressure on the yuan.


The Brazilian real edged up 1.30% against the U.S. dollar and printed gains for the third trading session in a row, on Tuesday. A more positive tone in the international markets owing to upbeat economic figures from China and the U.S. boosted emerging market currencies and commodity prices. However, internally, Brazil's service sector fell deeper into contraction during March, as a spike in Covid-19 cases and the reinstatement of restrictions caused a sharper decline in new work intakes. On that note, the Services PMI dropped to 44.1 in March, from 47.1 in February, remaining in contraction territory for the third month in a row. Looking ahead, Fundação Getúlio Vargas will publish the IGP-DI inflation index later today. The IGP-DI gauges the price changes of the entire production process: agricultural and industrial raw materials, intermediate products, and final goods and services and construction prices.


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