Daily Market Pulse

Treasury yields fueled significant demand for the USD


Having been sold early-on on Monday, after the Covid-19 vaccine news broke the USD was able to trim losses over the trading session as positive sentiment about a Covid-19 vaccine has also been reflected in higher U.S Treasury Bond yields. The striking jump in Treasury yields fueled significant demand for the USD and led to the Dollar Index to close 0.61% up against a broad basket of major currencies on Monday. It is a busy day on the economic data front, with the Job Openings and the Labor Turnover Survey (JOLTs) having the potential to drive the markets. Elsewhere, the IHS Markit Business Outlook, as well as the Investor's Business Daily (IBD) and the TechnoMetrica Institute of Policy and Politics (TIPP) economic optimism for November will also be expected later today, offering a vast range of data to gauge business outlook over the month.


Even though the news of a Covid-19 vaccine proving 90% successful was seen as a game-changer for the financial and commodities markets on Monday, the EUR was unable to print gains against the USD and it was down 0.67% amid a volatile trading session. The state of emergency and restrictive measures across the bloc are still hampering the pace of economic recovery, preventing further progress. Today, Germany ZEW Survey Economic Sentiment in November and France and Italy industrial output data are the highlights in the eurozone.


The GBP edged up 0.12% against the USD on Monday amid a positive tone from the Covid-19 vaccine news. However, Sterling’s gains were capped due to the market’s mixed reaction to Brexit headlines. The Upper House voted late on Monday to remove the most controversial parts of the Internal Market Bill, which gives ministers the power to unilaterally rewrite parts of the Withdrawal Agreement that Johnson signed with the European Union. Meanwhile, EU's chief Brexit negotiator Michel Barnier said they are redoubling their efforts to reach an agreement on the future between the EU and UK. Today, the UK will publish its October employment figures and market participants will watch the release of the IHS Markit UK Business Outlook.


The JPY was hard hit (-2.03%) on Monday and touched its lowest level since the end of October after the risk-on market mood provided a strong boost to the pair USD/JPY. The safe-haven JPY took a hit due to positive news from Pfizer and BioNTech, who reported that their Covid-19 vaccine candidate has been found to be more than 90% effective in its phase three trial, which was described by the BioNTech CEO as the “best possible result”. On the economic data front, the latest IHS Markit Business Outlook survey reported that Japanese private sector businesses signaled a strong improvement in sentiment in October. However, the report highlighted some risks for the country’s economic recovery, such as lower domestic and external demand, a delay to or cancellation of the Olympics, falling capital expenditure, and the potential of increased US-China frictions.


The Loonie printed a positive performance on Monday, after touching its strongest intraday level in nearly two years to close 0.13% higher against the USD. Higher prices for oil, one of Canada's major exports, added to support for the CAD. U.S. crude oil futures settled up around 7% at $40.29 a barrel after Pfizer announced the results of its tests, as well as Saudi Arabia’s assurance that OPEC+ could change the terms of its oil production cut deal if the members of the pact agree to do it.


The MXN was among the biggest gains among emerging currencies on Monday. The Mexican peso jumped 0.95% against the USD as investors saw a Biden win being projected, which improved trade sentiment and increased risk appetite. The oil-linked peso was also supported by an almost 7% leap in oil prices on news of the potential Covid-19 vaccine and Saudi Arabia’s assurance that OPEC+ could change the terms of its oil production cut deal, if the members of the pact agree to do it. On the economic data front, the National Consumer Price Index (CPI) rose 0.61% in October compared to the previous month, its highest monthly increase in three years, which pushed the 12-month inflation rate up to 4.09% (above the central bank's upper tolerance threshold) from 4.01% in September, according to official data.


The CNY edged up 0.16% against a softer dollar earlier today after the USD took a hit due to news of the development of a Covid-19 vaccine which raised optimism of a global economic recovery. The prospects of a potential Biden presidency also helped the CNY, as there is hope that better China-US relations could boost world commerce. China's consumer inflation eased for a third straight month in October as food prices tumbled, official data showed earlier this morning. The consumer price index (CPI) rose 0.5% year on year last month, narrowing from the 1.7% rise in September, which shows that the country's inflation could be tamed amid a greater credit flow from stimulus measures.


After touching its highest level since late July, the BRL failed to hold its gains and closed down 0.39% against the USD on Monday.  However, the Brazilian real is supported by the outcome of the US presidential election as market participants expect that Biden, who is projected to be the winner, could pressure Brazil over protecting the Amazon rainforest. Yesterday, markets also echoed Pfizer's announcement, stating that its experimental vaccine is more than 90% effective in preventing Covid-19, according to initial data from the phase 3 study. Late today, investors will watch the IHS Markit Business Outlook report, which will show the updated economic forecast for Brazil.


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