Daily Market Pulse

A couple of ECB speakers are due today and BoE policymakers make their final decision


USD price action strengthened and climbed into positive territory immediately after the Federal Open Market Committee’s (FOMC) statement yesterday, however, the greenback did not manage to hold the gains and subsequently reversed its heading, remaining close to two-year lows. Overall, the FOMC maintained the status quo yesterday, ratifying that the target range for the fed funds rate remains unchanged, at 0.00% - 0.25%. A report released Wednesday morning showed that retail sales sank 1.1% in November, the second straight month of weakness. This was also a worse showing than the 0.3% decline that economists expected. Also, on the radar, negotiations about a $748 billion relief package appear to have progressed and last week’s US jobless claims number is expected to remain persistently high, at around 800k.


The common-currency printed solid gains around 0.4% against the USD for the third straight trading session on Wednesday. The EUR/USD price action gained on the latest PMI data. According to the report, Eurozone business activity came close to stabilizing in December as stronger manufacturing output growth helped to counter a further drop in service sector activity. Encouragingly, future output expectations jumped to a 32-month high, as prospects brightened amid recent news on Covid-19 vaccine progress. Today, November’s final inflation data from the bloc are unlikely to surprise compared to the flash PMI estimate but will be worth watching. Besides, a couple of European Central Bank speakers are scheduled for this afternoon, it will be interesting to assess if either has anything to say about the recent euro strength.


The Sterling was almost unchanged (+0.02%) against the greenback on Wednesday amid Brexit deal speculation. The last PMI data did not do much for the GBP, though the December figures highlighted a marginal expansion of UK private-sector output, driven by another solid increase in manufacturing production. Policy decisions by the Bank of England (BoE) will be worth watching. With the path of the latest pandemic lockdowns also unclear, it means the BoE is likely to keep policy unchanged for now, but stand ready to react swiftly should the economic outlook deteriorate.


The Japanese yen continued to show gains (+0.17%) against the USD after the FOMC maintained the status quo on Wednesday. However, the JPY’s leap was limited by a weak Flash PMI report, which showed that the Japanese private sector continued to struggle in December, with flash PMI survey data signaling a further deterioration in business activity in the final month of the year. New orders also declined amid a further reduction in new export orders. Earlier this morning, shares were mostly higher in Asia, buoyed by hopes the U.S. Congress may finally deliver fresh aid to help American businesses and families weather the pandemic. The Consumer Price Index for November will draw the market’s attention and shine a light on Japan’s economy. Moreover, the Bank of Japan will all announce their final decisions of the year.


The Loonie slid 0.35% on Wednesday, slightly offsetting the CAD’s gains from the day before against the USD. The CAD’s drop was inspired by Tuesday’s comments from Bank of Canada governor Macklem, saying the recent Loonie appreciation is hurting the competitiveness of the country’s exports to the U.S and ratified that it is on the central bank’s “radar”. The macroeconomic data was positive, but CAD barely reacted, with the National Statistical Office showing that November headline inflation accelerated from 0.7% to 1.0%, signaling that the Canadian economic recovery could gain steam.  


The Mexican peso closed up 0.32% against the USD on the eve of last Mexico’s Central Bank (Banxico) meeting of the year. According to a Reuters Survey poll, policymakers are widely expected to leave benchmark interest rates unchanged at 4.25% despite slowing inflation. Even if Banxico cuts rates by 25 basis points, the U.S-Mexican differential rates will remain high and appealing for foreign investors. Elsewhere, traders and investors are still cheering a Mexican Congress’ decision which postponed a controversial new central bank bill that shocked confidence in the country's financial system.


The CNY climbed 0.09% against the USD on Wednesday as the Fed's cautious outlook might have made investors nervous initially, but its commitment to continue bond-buying until the economy records substantial improvement reassured the market. Investors pay close attention to new regulations on live streaming e-commerce in the country after the Chinese market watchdogs have recently issued a series of regulations to better monitor the live streaming e-commerce market and crack down on violations by both streamers and platforms. China's e-commerce market is expected to exceed 900 billion yuan this year, according to iiMedia Research.


The BRL was almost unchanged (-0.04%) against a perky dollar on Wednesday, after the Fed said it will maintain its huge bond-buying program until substantial progress is seen in employment and inflation. Higher commodity prices and the approval of the Budget Guidelines Law (LDO, in Portuguese) were seen as an important support to the BRL. The Brazilian Real sustains its current stance and continues to hover near the 5-per-dollar level – a vital psychological level. Meanwhile, the Brazilian shares index, Ibovespa, traded close to its highest level after erasing losses from the year. The mineral state-owned, Vale, showed a strong performance as copper prices rallied. Today, market participants will pay attention to the controversial vaccine plan and a rising anti-vaccine movement as the country registered over 68,000 new cases on Wednesday.


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