Daily Market Pulse

Panel with ECB President Lagarde, Fed Chair Powell, and BoE Governor Bailey


Against a basket of major peers, the USD ended on Wednesday around 0.32% firmer, extending gains made on Monday. It’s a busy day on the economic data front with the U.S providing the Inflation Rate and Core Inflation Rate reports for October. The Inflation Rate is expected to increase by 0.1% month-over-month. On a year-over-year basis, the Inflation Rate is projected to grow by 1.3%. Meanwhile, analysts expect that the Core Inflation Rate would grow by 1.8% year-over-year. Meanwhile, market participants will wait for the latest employment reports. Initial Jobless Claims are expected to decline from 751,000 to 735,000 while Continuing Jobless Claims are projected to drop from 7.29 million to 6.9 million.


The USD found a bid against the EUR in the Wednesday trading session, closing 0.31% down, after Bank of Spain chief economist, Oscar Arce said that the European Central Bank (ECB) must introduce additional monetary policy stimulus in December to reduce the risk of deflation in the eurozone. Eurozone inflation has been below zero since August as the Covid-19 pandemic crushes demand, and underlying price growth excluding volatile items is at a record low. All the while, ECB President Christine Lagarde predicted that consumer prices will rise again early next year, it’s also planning to “recalibrate” its stimulus in December and has called on governments to step up fiscal spending. Today, Eurozone Industrial Production data will be in focus.


Similar to the EUR, the dollar also found a strong demand against the Pound after Reuters reported that a Brexit deal could not be ready this week, exerting pressure on the GBP. Irish Foreign Minister Simon Coveney on Wednesday said “Reaching a deal in the coming weeks is very difficult, but I also think it is doable. No deal is in nobody’s interests.”. On the economic data front, the UK’s gross domestic product (GDP) is estimated to have grown by a record of 15.5% in Q3 (July to Sept) 2020, as lockdown measures were eased, according to official data. However, the GDP slowed in September as a resurgence in Covid-19 cases started to worsen. Finally, all eyes falling on this afternoon’s panel discussion between three of the heavy hitters in the world of monetary policy – ECB President Lagarde, Fed Chair Powell, and BoE Governor Bailey.


The JPY slid down 0.13% against the USD on Wednesday as the U.S election impact on markets continues to fade and economic data back to firmer on the investor’s radar. Japan’s Producer Price Index (PPI) for October remains unchanged around -0.2% month-on-month and matched -2.1% forecasts year-on-year. This contrasts with the September month Machinery Orders that recovered from -15.2% prior and -11.6% expected to -11.5% year-on-year. Investors will continue to digest Japan’s mixed industrial data, but they will also keep an eye on U.S headline inflation for October and U.S weekly Jobless Claims. Both reports are risk catalysts.


The Canadian dollar posted slight losses (-0.25%) against the USD in a quiet Wednesday session as Canadian and U.S banks were closed for a national holiday. Today, Senior Deputy Governor of the Bank of Canada, Carolyn A. Wilkins, will speak virtually to the Munk School of Global Affairs and Public Policy Exploring Life Post-Covid. She is expected to outline how the Covid-19 crisis has damaged economic potential and discusses what will be needed to thrive in the post-pandemic world. Investors will also wait for U.S consumer inflation data for October.


The Mexican peso dipped 0.74% against the USD on Wednesday, halting the previous six successive gaining streaks. The MXN’s drop not only was a technical correction, but also a likely reaction to weaker industrial production data. The Covid-19 crisis led Mexico's industrial production to fall 6.2% last September compared to the same month of 2019 due to the fall in all sectors, the National Institute of Statistics and Geography (INEGI) reported on Wednesday. With seasonally adjusted figures, industrial activity remained unchanged in September. Today, investors and traders will wait for the policy meeting of Mexico's central bank. The bank is expected to cut its benchmark interest rate by 25bp. 


The Chinese yuan lost some ground (-0.17%) against the USD on Thursday morning in Asia, with investors lowering expectations for a Covid-19 vaccine, as well as after tensions between the U.S. and China rose over the National People’s Congress Standing Committee (NPCSC)’s Wednesday resolution disqualifying any lawmakers in Hong Kong's Legislative Council deemed insufficiently patriotic without going through the city’s courts. In response, U.S. National Security Advisor Robert O’Brien said China’s latest clampdown in Hong Kong shows that the one country, two systems arrangement for the territory amounts to a “fig leaf” for dictatorship, and warned of new sanctions. 


The BRL rose 0.43% against the USD on Wednesday after data showed retail sales advanced 0.6% in September compared to the previous month and rose 7.3% over a year earlier. The positive figure reflected the effect of financial emergency aid from the government, as well as by the easing of social-distancing measures to contain the pandemic. Brazil’s economic fundamentals are stronger than most of its emerging peers in LATAM, however, the Real has been performing much worse than the MXN and CLP, for instance. More evidence regarding Brazilian economic recovery will be published on Friday, with the IBC-Br Economic Activity index reflecting preliminary gross domestic product data.


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