Daily Market Pulse

Electoral College affirms Biden win


The dollar fell 0.07% close to a two-year low against a basket of peers on Monday, as renewed hopes for a Brexit deal and progress on vaccines, as well as the U.S. Covid-19 fiscal plan, lifted riskier currencies. Meanwhile, Electoral college members cast their votes and made it official that Joe Biden won the U.S. election. Looking ahead, a torrent of headlines on U.S fiscal stimulus negotiations and industrial production figures could provide some direction to the USD over the trading session. The Federal Open Market Committee (FOMC) will begin their two-day policy meeting today, with the decision to be announced tomorrow evening.


The euro rose around 0.08% against the U.S dollar on Monday. New lockdown restrictions on activity in Europe - including a strict lockdown in Germany and the Netherlands - limited the EUR’s gains. Also capping gains, the breakthrough in Brexit talks didn't arrive yesterday, with the suggestion now that a deal could get done in the upcoming days, albeit with the caveat that differences still remain between the two sides. Turning to data, Eurozone industrial production in October surprised on the upside, increasing by 2.1%, leaving production just -3.5% below pre-pandemic levels. However, industrial production in November and December may slow down as second-round effects of the restrictions will also plague the industry. 


The Cable gained 0.05% after the U.K and European Union agreed on Sunday to continue Brexit talks, with the EU’s chief negotiators saying that both sides see hope to clinch a deal over this week. However, limited progress is being made on the knotty issues of a level playing field, with talks over fisheries remaining very difficult. "If there is progress on fishing then we could have an agreement in the coming days," said an EU diplomat official. All the while, London is moving into the highest level of Covid-19 restrictions under the U.K.'s lockdown rules following a surge in cases. Turning to data, November’s UK labor market data will be released today. The key question is whether the market will pay attention to all of this, at the same time.


The Japanese yen started off the trading week with losses (0.06%) against the greenback for the second straight session. Although the Q4 Tankan survey showed that the Large manufacturers’ index has improved for the second straight quarter, the index remained in contraction territory. In addition, there has been huge progress towards Covid-19 vaccine distribution across the globe in the past few weeks, which has raised investor risk appetite. This has resulted in reduced appetite for both USD and JPY.  Market participants will closely watch trade balance, imports, and export data, which are scheduled for later today.


The Loonie kicked off the new trading week with slight losses after the CAD closed down 0.04% against the U.S dollar on Monday. So far this month, the Canadian dollar has gained 1.85% against its U.S counterpart. Helping the Canadian currency to hold firm was news that the government of Canada has inoculated its first citizens against the Covid-19 after some of the 30,000 doses of the Pfizer/BioNTech vaccine arrived over the weekend. U.S. crude futures are firmly holding above $46 per barrel, helping the loonie's cause as well. With oil prices moving higher and the economy showing signs of recovery, the Loonie should continue to gain territory in early 2021, especially if the U.S economy improves too.


The Mexican peso slid 0.80% against the greenback on Monday, however, it is holding firm above the 20-day moving average. Although it is a quiet week as to macroeconomic data, the political outlook is hectic. Today, the lower house of Mexico’s Congress will debate a hotly contested bill that critics say would force Mexico’s central bank to absorb money from drug gangs. Rating agency Moody’s warned late yesterday that the reform would be “credit negative” for the sovereign because it would compromise the bank’s autonomy in a country that ranks relatively low in rule of law and control of corruption. The measure should go to a vote today, which will encourage investors to hold their FX and bond positions until a clear definition.


Although the currency’s outlook is that the yuan is likely to keep on rising, the CNY inched down 0.05% against the USD for the sixth trading session in a row on Monday. The recent drops occurred after corporate bond defaults shattered investor confidence and scuppered new issuances. In an attempt to soothe the market nerve, China’s central bank (PBoC) made its biggest ever injection of medium-term funds on Tuesday to shore up liquidity. The PBOC said in a statement it had issued $145 billion worth of one-year medium-term lending facility (MLF) loans to financial institutions to keep the “banking system liquidity reasonably ample”. The huge cash injection has led the Dollar/yuan swap points to fall, with the one-year tenor easing to the lowest in more than four months. 


The Brazilian real was not able to breach the 5-per-dollar level and fell 1.05% on Monday. This attempt to hold firmly at the mid-June level was encouraged by Central bank data which showed Brazilian economic activity grew 0.86% in October compared to September, marking the sixth consecutive month of growth. However, the reading was the lowest result since May, indicating an economic slowdown. Today, investors will continue to digest the long-awaited national vaccination plan which was unveiled over the weekend, as well as waiting for Meeting Minutes from the last Central Bank meeting. 


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