Daily Market Pulse

U.S. treasury yields pull dollar back

5 minute read


Amid a U.S. Treasury Yield pullback yesterday, the U.S. dollar index fell 0.51% and remained steady during the early hours of Thursday. Markets remain expectant due to a general lack of fundamental drivers, while investors stay tuned to upcoming data releases. Additionally, investors avoid placing big bets ahead of key central bank announcements next week, and most currencies struggle to make a decisive move in either direction against the greenback. Later today, the economic calendar will bring Initial Jobless Claims and market participants will stay alert on news surrounding China’s zero covid policy.


The Euro stepped 0.37% higher against the dollar in Wednesday's session amid a broader reduction in U.S. yields, giving leeway for other currencies to advance. However, the common currency remains testing its closest resistance, also the highest price since June this year. Today, we could witness some volatility arising from ECB president Christine Lagarde, scheduled to speak later in the day. Furthermore, market participants have noticed bearish symptoms in the options market, with one-week 25 Delta risk reversals trading 28 bps in favor of puts, the most in a week. The latter suggests bearish positioning against the common currency, although the pair still needs to materialize the bearish option bias.


The British Pound Capitalized 0.59% on Wednesday against the greenback, snapping two consecutive sessions recording losses amid a softer tone around U.S. treasury yields. However, today the pound slipped in the early hours of the trading session as gilts fell across the curve as today marks the Bank of England’s final active QT bond sale of this year. Moreover, an industry survey showed a slower pace of hiring and pay in November as companies concerned about the UK economy tipping into recession became more reluctant to take on permanent staff.


The Japanese Yen remains virtually unchanged for the third consecutive trading session as the currency oscillates within a tight range against the dollar. Market participants remain wary of the shape of the Japanese economy, especially after an unexpected deficit in currency accounts weighed on sentiment. The deficit readings were the second worst on record, posting JPY 609 Billion deficit, while expectations were set at JPY 352 Billion surpluses. Additionally, Gross Domestic Product contracted by ee0.8% in Q3, better than previously anticipated at 1.2% contraction.


Yesterday, the Bank of Canada raised interest rates aggressively for a sixth straight time. The BoC raised its interest rate by 50 bps to 4.25%. Moreover, BoC repeated its view that inflation was too high, citing economic growth was stronger than expected in the third quarter, bolstered by robust commodity exports. However, despite such hike, the Loonie was not able to benefit from it and closed the trading session flat. West Texas Intermediate trading below $75 a barrel also limited any CAD´s rally. Looking forward, traders are already taking into account forthcoming events in the US (release of the data on inflation growth in the US and the Fed's December meeting).


Mexico's House of Deputies approved the alternate version of the president's electoral reform on Wednesday. The bill's aim is to cut the cost of electoral authorities, however, by doing so it hurts core components of the institution. Overall, market analysts find this reform to be negative to the country's institutional strength. Nonetheless, the political risk has been priced, with the MXN appreciating more than 3% over the past three days. For today, market participants await the latest consumer price figures for November. Looking ahead, the next Banxico rate decision is scheduled for December 15 and should provide support to the currency in the short term depending on November CPI.


Yesterday, the Chinese Yuan gained 0.36% against the dollar, reflecting the reopening optimism and a potential economic rebound. However, the Yuan's bounce was limited by expectations that the virus infection would rise and bring the economy to a halt when Covid restrictions are dismantled. That said, option market indicators are signaling mixed sentiment toward the yan, and expectations of future swings remain high as per the currency´s one-month volatility gauge. Looking ahead, traders and investors will keep an eye out for the Consumer and Producer Prices Index that is set to be released tomorrow.


As expected, Brazil’s Central Bank maintained unchanged the Selic rate at 13.75% on Wednesday. It was the third consecutive rate hold after an 18-month-long cycle during which the BCB hiked by 1175 basis points. Moreover, BCB highlighted the inflation outlook and warned that the rate outlook may change if President-elect Lula adds new risks to the country’s fiscal stability. Today, traders will digest the approval of the proposed amendment to the Constitution (PEC) by the Senate. The so-called ``PEC da Transição´´ raises the spending ceiling limit by R$145 billion between 2023 and 2024. Now, the bill will go to the Chamber for the final vote.


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