Daily Market Pulse

The Dollar’s up on the optimistic market mood


The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, edged 0.22% during Monday’s closing session. The market entered the European session with a greater risk on mood, indicated by gains in S&P 500 futures for the day. Meanwhile, the aggressive and hawkish tone of the Fed for faster tapering and early rate hikes are in place, which keeps the dollar index firmly supported. The market's optimism was buoyed further by scientists' reports of having few side effects from the new Omicron variant. Presently, there is no increase in new infections in South Africa. Market participants are looking forward to Non-farm productivity (Q3) and Goods and Service trade balance (Oct) today, as well as Omicron-related headlines to provide fresh drive for the dollar index. 


The Euro suffered 0.27% against the U.S. dollar towards the end of Monday’s session, followed by it extending its modest downturn in the early hours of the European trading session. The Euro gained a modest uptick, sponsored by strong German industrial production data, which surged by 2.8% (seasonally adjusted figure) for October against expectations of 0.8%. However, the dollar has an upper hand due to stronger U.S. Treasury yields, a market risk-on mood, and the absence of any major data/events in the Eurozone yesterday. Meanwhile, Austrian Central Bank governor and European Central Bank governing council member Robert Holzmann stated on Monday that inflation in the Eurozone would be highly unlikely to recover to or fall below 2.0 percent in 2022. Moving on, the second reading of Eurozone Q3 GDP, and October's ZEW sentiment statistics for the bloc and Germany will be critical to watch today to find short-term trading opportunities for the Euro. 


The Sterling gained 0.21% against the greenback during Monday’s closing, followed by a stall in its gains while entering the European trading session as more cases of the Omicron virus in the UK overwhelm market optimism. The Pound bears the brunt of the relentless spike in new infections, with 336 confirmed cases of the highly-mutated form across the U.K. on Monday, a surge of 90 from Sunday’s figures. Sajid Javid, the UK’s Health Secretary, stated that community transmission of the Omicron coronavirus strain exists in numerous locations in England. In the recent Brexit update, the UK is set to extend an olive branch to France in order to resolve the fishing dispute. According to British officials, a deal on replacement boats might be achieved, allowing for the issuance of more licenses to EU vessels. Looking ahead, the Omicron stats from the UK will be closely eyed amid a data-dry calendar for movements around the Sterling. 


The Japanese Yen declined 0.60% against the U.S. Dollar on Monday’s closing season. The Yen closed negatively against the greenback for a second consecutive day amid the risk-on mood. The U.S. dollar, in the Asian Trading session earlier today, edged higher against the Yen and spiked to one-week highs. This is because the global risk sentiment stabilized amid reports that Omicron patients had only shown mild symptoms. This helped ease fears about the economic fallout from the new variant of the coronavirus and boosted investors' confidence, which was evident from a positive tone around the equity markets. Bulls were also encouraged by a further rebound in U.S. Treasury bond yield rates to further bet on the dollar, undermining the Yen. Because there are no major market-moving economic data releases in the U..S.. today, market players will leave the Yen at the mercy of wider market risk sentiment.


The Loonie spiked down by 0.68% against the greenback on Monday’s closing. The Loonie closed higher against the dollar for the second consecutive day amid high crude oil prices. The Loonie edged up from the September lows yesterday and surged higher, built on its main export item crude oil. WTI crude oil had risen to a one-week high, up 1.0% on the day around $70.40. Meanwhile, market mood improves as a result of a lack of major virus-related deaths, as well as hopes of discovering a treatment for the COVID-19 strain Omicron. Moving on, investors will keep an eye on U.S. trade numbers, Nonfarm Productivity and Unit Labour Cost, which will join the Canadian International Merchandise Trade and Ivey Purchasing Managers Index for November to provide fresh impetus to the Loonie. 


The Mexican Peso rose 0.23% against the U.S. dollar during the previous day’s closing. This was attributed to the macro data released yesterday, where the Consumer Confidence Index printed stronger data. The Consumer Confidence Index released yesterday stood at 45.8 against the estimates of 43.6 and performed better than the previous reading of 43.6. This bolstered the Peso against the greenback, winning investors’ trust for the day. Meanwhile, the upside potential is limited due to strong U.S. Treasury yields and a hawkish tone around the U.S. dollar. Additionally, it is worth watching how the newly elected Head of Banxico will move forward with the monetary policy stance amid domestic politics and U.S. dollar headwinds. Market participants later today will take cues from broader optimistic market sentiments and the U.S. dollar price dynamics to provide a fresh drive for the Peso. 


The Chinese Yuan edged 0.01% against the U.S. dollar at the closing of Monday’s session. The offshore Yuan ticked higher per U.S. dollar on Tuesday, as investors digested the central bank’s decision to cut the reserve requirement ratio. Meanwhile, the market sentiment was lifted by upbeat trade data. The People’s Bank of China announced it will cut the RRR by 50 basis points on Dec. 15, which is enough to release 1.2 trillion yuan of liquidity from Chinese banks. Additionally, market sentiment improved on better-than-expected November trade data, suggesting that the yuan’s ascent has not hindered robust exports. Meanwhile, Foreign exchange reserves in China inched up to USD 3.222 trillion in November of 2021, from USD 3.218 trillion in October, making it the second consecutive month of rising reserves and slightly higher than market forecasts of USD 3.212 trillion. Moreover, the Shanghai Composite Index rose 0.16% to close at 3,595, while the Shenzhen Component Index fell 0.38% to 14,697 on Tuesday, as mainland stocks traded mixed after the central bank cut the reserve requirement ratio. 


The Brazilian Real retreated 0.59% against the U.S. dollar on the previous day’s closing. The Brazilian Real got off to a bad start this week, falling for the second day in a row and renewing its early November lows. The market continues to react to possibilities of interest rate hikes in the U.S. ahead of schedule as well as latent geopolitical risk. Meanwhile, the two-day meeting of the Monetary Policy Committee of the Central Bank of Brazil begins today. The new benchmark interest rate (Selic) level, which will be announced tomorrow, is expected to see a new hike of 1.5% basis-points reaching 9.25% per annum. A new report presented by the Ministry of Economy states that although the PEC dos Precatórios released R$106 billion, the resources will not be enough to cover government expenses, such as gas and transportation vouchers, and new income tax references. In this way, there may be a R$2.6 billion breach in the spending ceiling. The market will closely follow the developments of this potential breach, which might add pressure on the BRL.


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