The USD Index, which tracks the performance of the greenback against its major peers, continues to trade under bearish pressure despite a shy bounceback (+0.09%) it registered yesterday. Overall, the bid note continued after poor jobs reports and now investors await the Consumer Price Index (CPI) figures on Thursday. The expected figures have started to revive the narrative around the Fed postponing any tapering until “substantial progress” has been made on both inflation and unemployment. Additionally, Biden infrastructure talks with Republicans collapsed after a crossfire of counter offers that failed to reach a common agreement. However, President Biden has already started talks with a bipartisan group of senators that are working on a parallel proposal, while engaging with Democrats on a possible budget reconciliation that would leave any GOP buy-in out of the equation.
The EUR stepped back (-0.14%) against the USD as investors are cautious ahead of European Central Bank (ECB) interest rate decision and U.S. Consumer Price Index both to be released on Thursday. The common currency had a session with mixed economic data which left investors uncertain. Zew Survey, showed that investor confidence in Germany deteriorated in June, which came along with a decline in industrial production and factory output in April. However, the bloc’s aggregated data seems to have a better view than the Germans, as Zew Survey sentiment exceeded expectations with Gross Domestic Product for Q1 at -1.3% vs 1.8% expected year over year and Employment Change at -1.8% vs -2.1% expected year over year.
The Sterling failed to register further gains against the greenback, but the pair continues to trade higher, testing the resistance at this year's highs. The latest U.K. COVID-19 statistics, helped Prime Minister Boris Johnson to stand firm on the 21st of June as the reopening of the economy despite market fear of a possible extension. Additionally, interventions from Andy Haldane, Chief Economist from the Bank of England (BoE) supported the bull sentiment on cable as strong comments relating to the U.K. housing market firmed up the calls of tapering from the central bank. Later today, Brexit talks will take place in London where negotiators will try to assert Northern Ireland protocol. David Frost, U.Ks Brexit minister urged the European Union (EU) to show “common sense” in order to achieve an agreement on post-Brexit rules in Northern Ireland.
The Japanese Yen retraced (-0.24%) against the dollar as the effect of better than expected Gross Domestic Product (GDP) Q1 figures and disappointing U.S. job data faded away after two days of JPY registering gains. However, the latest round of data, including the upbeat Leading Economic Index, seems to have diminished fears of further economic deterioration in the country. The improved sentiment keeps providing support to the Japanese Yen amid recovering expectations, and COVID outbreaks are slowly starting to be brought under control.
The Canadian Dollar stepped back (0.3%) against the American dollar as investors are cautious ahead of the Bank of Canada rate statement due later today. Market participants expect interest rates to remain unchanged but possible tapering measures or hawkish comments from policymakers could hint at a move on the pair. On the commodities side, the West Texas Intermediate (WTI) crude oil is looking to break USD 70 per barrel which would add as a strong fundamental to sustain further gains for the Loonie against the dollar.
MXN – The Mexican Peso keeps its strong momentum recording three consecutive days of gains against the greenback, appreciating 0.46% during yesterday’s session. The MXN registered its highest levels since January this year amid optimism derived from the narrowed simple majority earned by the Monera party in the chamber of deputies. The political outcome reduces the probability that constitutional reforms adversely affect foreign direct investment and/or weaken the institutional strength in the country.
The Chinese Yuan edged 0.15% higher against the dollar amid the general weakness of the USD and solid inflation data from China. The report showed the Chinese Producer Price Index spiked from 6.8% in April to 9% in May, the highest increase since 2008 showing the pick up in their manufacturing sector. However, Consumer linked inflation seems to be lagging as the Consumer Price Index rose from 0.9% to 1.3% year over year which suggests that profit margins will narrow according to market participants.
The Brazilian Real sustained the recent gains against the greenback and continues to trade close to levels last seen in December 2020. Brazil's Central Bank (BCB) released its Focus bulletin, where policymakers revised up by 0.4% their economic forecast and the Brazilian economy is expected to expand 4.36% by the end of the year. The central bank’s revision followed the robust Q1 - GDP figures which showed that the economy grew 1.2% during the quarter beating pre-pandemic levels. This has worked as a tailwind for the Real but several political risks could put in jeopardy the sustained appreciation of the currency.