The U.S. Dollar Index, which tracks the performance of the greenback against a basket of major peer currencies, fell 0.32% during yesterday’s trading session as the USD lost momentum amid dovish Federal Open Market Committee (FOMC) minutes and poor unemployment-related figures feeding the sell-off on the USD. Following the main takeaways from the FOMC minutes, substantial further progress still needs to be made on unemployment and inflation before policymakers hike interest rates. With this in mind, Initial Jobless Claims were released at 373k vs 350k previously anticipated while Continuing Jobless Claims followed the same pattern, failing to impress with 3.339M vs 3.484M expected. The Dovish note from Fed officials was accentuated by the poor unemployment figures released on Thursday which suggest unchanged monetary policy for the time being. Additionally, U.S. Treasury Yields continue to edge lower, recording 1.2480%, the lowest in four months, failing to support the USD during the trading session. However, as tapering talks become more imminent, we expect the U.S. dollar to regain momentum and break the year highs recorded earlier this week. Coming up, the Federal Reserve is due to provide the semi-annual Monetary Policy Report to the Senate Committee containing discussions of the conduct of monetary policy and economic developments, as well as prospects for the future of the U.S. economy.
The common currency advanced 0.47% against the dollar, amid growing Delta variant concerns and the European Central Bank (ECB) shifting its monetary policy approach. Christine Lagarde, President of the ECB, announced yesterday that the central bank will shift to a symmetric inflation target of 2%, contrary to a ceiling at that level, allowing inflation to edge higher to compensate for the previous cap which has dragged price action. Policymakers expect inflation to converge to its target as projections for the year eye the 2% mark, the highest in eight years. Nevertheless, the ECB is confident that price behaviour should slow down to 1.5% in 2022 and 1.4% in 2023. Later today further ECB interventions are expected, starting with a speech from President Lagarde, which will be followed by talks from ECB monetary Policy Meeting Accounts throughout the course of the day.
The Pound Sterling remained under pressure, retracing 0.07% during the previous trading session. Growing Delta variant concerns keep the markets cautious, while the U.K. government, which is predicting that cases could reach up to 100k per day, is still adamant about moving ahead with the reopening of the economy on the 19th of July, relying on the vaccination ratios to keep the boat afloat. Cable momentum has turned to the downside driven by uncertainty, but given that key support levels continue to sustain the pair around current levels for the last couple of days, it is likely that cable will trade sideways in the short term until the fundamentals refresh impetus. Today, interesting U.K economic figures failed to meet expectations during the early hours of the day, with Gross Domestic Product, Manufacturing Production, and Industrial Production releasing poor results for May. The market continues to digest the economic slowdown amid the risk-off the mood of the market, sustaining cable prices above key support levels.
The Japanese Yen was yesterday’s best G10 performer off the back of its safe-haven appeal amid risk-off sentiment in global markets. The Japanese currency posted 0.77% gains against the greenback while U.S. Treasury Yields edged lower following the risk-off pattern, and global equities also pulled back as uncertainty flooded global markets. Moreover, it is worth noting that the Japanese Yen broke a two-month negative trend in its recent bullish run, opening the possibilities as to whether we might see this change in trend sustain in the weeks to come.
The Loonie remained subdued, falling 0.4% against the dollar and recording prices last seen in April this year. Coronavirus concerns and a cautious sentiment ahead of Canadian data to be released later today weighed on the Loonie while oil prices started to lose traction removing support for the Loonie. Today, important Canadian Unemployment figures are expected at 7.7% in June, lower than its previous release at 8.2% which, in case of beating expectations, could see the Canadian Dollar take a breather and recover some lost ground. Market participants will also look closely into wage data which had a poor release during the May release falling 1.44% year over year.
The Mexican Peso retraced 0.41% against the greenback following the risk-off pattern across global markets. Mexican President Andres Manuel Lopez Obrador announced his plans to establish “Gas Bienestar”, a new state-owned firm dedicated to the distribution of liquefied petroleum gas (LPG) in the country. The initiative comes from the fact that the government accused Private firms of overpricing consumers for the LPG they receive from state-owned company Pemex. The objective of this project is to provide “fair price” LPG while devising a mechanism to set price ceilings and help contribute to controlling Price indexes linked to fuels. The Mexican opposition argues that the government's proposal is another attempt by the President to gather control over the energy market by reducing private sector participation.
The Chinese Renminbi fell 0.21% during yesterday’s trading session amid an unexpected shift from Chinese authorities that may soon release further support for the economy, hinting that the Chinese recovery may be weaker than what market participants believe. The Chinese Stock Index (CSI) retraced 1.2% after government officials hinted that the private sector may need fresh funding, while bond futures edged higher. In addition to this, the crackdown in tech regulation in Hong Kong continues to add to the overall bearish picture in the market. Moreover, poor inflation data supported the Chinese narrative earlier today, with Consumer Price Index contracting 0.4% in June and recording yearly inflation of 1.1% vs 1.3% previously anticipated, while the Producer Price Index bangs on expectations.
The Brazilian Real remained subdued, reaching prices we last recorded in May but returned back to its opening-closing relatively unchanged (0.23%) amid global uncertainty and strong retail sector outlook in Brazil. The National Confederation of Commerce in Brazil released its forecast, posting the highest sales the country has seen in nine years. The figures expect Gross Domestic Product to expand from 3.9% to 4.5% from which the Retail Sector is expected to grow 1.4% in May and it is projected to grow an aggregate of 16% year on year. Despite the revised figures, IPCA inflation released yesterday failed to impress, posting a soft 0.53% monthly variation vs 0.59% previously anticipated.