Daily Market Pulse

USD

The dollar surged to a one-month high yesterday, cementing strong gains across the board, aided by surging US Retail Sales data, which jumped by 3% over the past month and marked the strongest print for over two years and further underscoring the strength of the US economy. Markets have quickly evolved from expecting a ‘hard’ or ‘soft’ landing outcome to suspecting that there will be no landing at all for the US economy. That improving sentiment has also helped to boost risk assets, even if the Bond market has a different opinion as yields surge, especially at the front end. Today there are largely low-impact data releases due, which will set the tone for the rest of this week. 

 

EUR

Having declined over 3% from the recent high, EUR/USD found some support at the tail-end of yesterday, a move which may have been impacted by the latest comments from ECB Head Christine Lagarde, who reiterated her (and the ECB’s) desire to raise Euro area interest rates by another 50bps at the forthcoming meeting. Given that markets are far more fixated on what the ECB will/will not do after this next meeting, it was perhaps no surprise that the gains have been fairly limited for the single currency. However, the splattering of ECB speakers set to speak through today could still drive home a hawkish narrative. 

 

GBP

GBP/USD remains within a few pips of this week’s open, but that only tells half of the story, as there have been some fairly choppy and volatile moments in-between. Stronger UK data initially helped to drive the pound higher in the early part of the week, but that rally was swiftly reversed yesterday after the latest UK inflation data softened, which could give the BoE an emerging window to slow the pace of future rate hikes, especially given such a dire outlook for the UK economy of late. Tomorrow’s Retail Sales data will also be key, with the latest estimates forecasting a slight improvement after last month’s 1% decline.

 

JPY

USD/JPY continues to defy gravity, rallying over 3% throughout this week, with the rally mainly supported by improving risk sentiment and the surging greenback. With 10-year JGB’s also remaining at over 0.5% for the past two days, the rally in the dollar looks like being the pain trade for many, given higher Japanese bond yields normally transmit into a stronger yen (weaker USD), which has clearly not been the case throughout this week.

 

CAD

USD/CAD has probably been the one outlier of late, given that the greenback has failed to make any serious headway against that resolute Loonie, with the pair trapped in a well-trodden range. Supporting the Loonie has been surging oil prices, with front month US WTI rallying by roughly 10% since the beginning of February, as potentially greater demand (China) and supply (Russia) issues help to boost energy prices. Further supporting the Loonie has been stronger Canadian data, which has put some serious question marks around the BoC’s ability to maintain their recently-advertised pause in rate hikes. 

BRL

USD/BRL rallied nearly 0.4% through yesterday, reflecting broader gains for the dollar across the board. Over the past two days, the pair has rallied close to 1.5%, but still remains around 1.5% below last Friday’s close, after the BRL made some worthy gains in the early part of the week.