Daily Market Pulse

President Trump's uncertain fate


The USD gave back its gains from the day before amid President Trump's uncertain fate. The greenback fell 0.41% against a basket of major currencies on Tuesday as the House of Representatives voted to demand U.S Vice-President Mike Pence acts to remove President Donald Trump from office by using the 25th Amendment while the House also prepares to vote to impeach the President. An important data docket awaits today, with investors now looking towards U.S. inflation figures for December and the Fed Beige Book. In the meantime, the House will vote on the impeachment of President Trump for the second time later today.


The common currency is still showing strong resilience amid a persistent pandemic crisis. The EUR closed 0.48% higher against the USD despite a warning from German Chancellor Merkel that lockdown measures may last for eight to ten weeks if the Covid-19 numbers do not improve. In Ireland, hospitals are under pressure due to the new strain of Covid-19 found in the U.K. However, the currency remains well supported by massive inoculation campaigns, low-interest rates, and the persistent rally in stocks. This morning, ECB President Lagarde is due to speak and eurozone industrial production data tops the economic calendar.


The GBP rose over 1% against the greenback on Tuesday as Bank of England governor Andrew Bailey played down the idea of negative interest rates to boost growth, saying that “there are a lot of issues” surrounding such a policy. The market’s sentiment was lifted after authorities said the U.K will start talks with the European Union this week on post-Brexit financial services cooperation with both agreeing to broker a memorandum of understanding on the issue by March. Yet, market participants will keep an eye on the U.K. RICS House Price Balance and December’s US inflation figures.


Japan’s current account surplus for November rose 29.0% from a year earlier, up for the third straight month, where exports rose by 4.3%, accelerating from 2.5% in October while imports were softer 0.3%, down from 3.0%. This government data reported on Tuesday, in some way, helped the JPY to keep firm against the USD, which appreciated 0.47%. However, the gains were limited, as investors turned cautious after a new Covid-19 variant was detected in four people who arrived in Japan from Brazil and as reports indicated the Japanese government plans to expand a state of emergency to the western prefectures of Osaka, Kyoto, and Hyogo, raising uncertainty over the economic outlook.


The Canadian dollar rebounded 0.59% against the greenback on Tuesday as the ongoing pullback in the U.S bond yields held the USD bulls on the defensive. The U.S dollar was also seen under pressure by the underlying bullish sentiment in the FX markets. Overall, the CAD was also supported by Tuesday’s API data that reported a larger-than-expected fall in the U.S in oil inventories and pushed oil spot prices to the highest level since February.


Yesterday, Mexico's peso edged up 1.42% against the dollar a day after data showed the Mexican manufacturing sector's recovery from the pandemic slump had slowed in November. Overall, the USD/MXN pair remains in their downtrend with rates going towards pre-Covid-19 levels. However, lower oil prices and raising Covid-19 infections in the country could put additional pressure on the MXN. Since the Mexican economic calendar is empty this week, traders will pay attention to the December U.S inflation report (CPI), December US retail sales, and numerous Federal Reserve policymakers who are speaking over the week.


The CNY rose almost 0.3% against the USD, recovering the losses from the day before, on Tuesday. Nonetheless, the CNY’s gains were capped after China’s monetary supply data gave some concern. The narrow measure of the money supply (M1), which covers cash in circulation plus demand deposits, came in much lower than expected at 8.60%, while M2, a broad measure of money supply covering cash in circulation and all deposits, rose 10.1%, still slightly below consensus. If both measures, (basically all the money in circulation), drop again, it may require some reassessment of China's 2021 growth. Hence, China’s Central Bank would have to reassess the Chinese yuan price as well.


The Brazilian real appreciated over 3%, after falling to a two-month low against the greenback on Tuesday. The BRL’s gain came after Brazil’s Central Bank (BCB) Monetary Policy Director Bruno Serra signaled that the benchmark interest rate (Selic), which is currently at the minimum historical of 2%, could be increased in the upcoming months. The BCB’s potential decision was reinforced after inflation rose again, with the annual IPCA ending at 4.5% last year, above the central bank's 4% target. In this way, the BC assesses the end of the policy-easing cycle. Looking ahead, the service sector growth is expected to be released later today.


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