Daily Market Pulse

The confluence of positive factors led investors to short USD positions


The U.S dollar moved sharply towards a two-and-a-half-year low on Thursday. The DXY index which tracks the USD against a broad basket of major currencies closed 0.69% down. News about vaccine rollouts, as well as the last FED’s decision to remain unchanged in its dovish stance and the latest U.S. stimulus measures have only increased bearish sentiment over this week. That confluence of factors led investors to short positions in the dollar, which shot up to just below nine-year highs. Turning to data, another dismal employment-related data, as the number of those claiming unemployment benefits increased 23,000 to a seasonally adjusted 885,000 for the week ended December 12.


The EUR continued its rally against a weaker greenback on Thursday. The common-currency closed up 0.57% as the Federal Open Market Committee meeting paved the way for a continued decline in the U.S Dollar Basket. The EUR remains on track to finish the year around mid-2018 levels as sinking U.S. Treasury yields will also keep the dollar depreciated and help boost the EUR. Moving forward, the European Union is pushing for vaccinations to start just after Christmas, with an update from a key advisory committee due on Monday.


Yesterday, the weaker USD helped the GBP to once more extend its gains for the fourth trading session in a row. The Pound edged higher 0.56%, although time is running out for a post-Brexit deal to be done. Both sides, the U.K and European Union, are still expressing doubts that an agreement could be reached, with fisheries remaining the main sticking point between the two sides. Not surprisingly, the Bank of England’s Monetary Policy Committee (MPC) voted to maintain Bank Rate at 0.1%, in an attempt to meet the 2% inflation target, and in a way that helps to sustain growth and employment. Today, market participants will watch for Retail Sales figures for November.


As the year is drawing to a close, the Japanese Yen started a sharp move upwards. The JPY jumped as much as 0.37% against the greenback on Thursday as the U.S Treasury yields edged lower following dismal employment-related data, depressing the USD/JPY pair. Today, the Bank of Japan will announce its policy decision, which is widely expected to leave rates steady but deliver an extension of a package of steps aimed at easing corporate funding strains.


The Canadian dollar strengthened 0.18% against its U.S. counterpart on Thursday as rising risk appetite broadly weighed on the USD, with the CAD remaining stable around the strongest two and half year level it touched earlier this week. The CAD also rallied up on the back of the ADP Nonfarm Employment report, which showed that Canadian employment rose by 40,800 in November, led by hiring in the professional services, finance, and trade sectors. It was the first job gain since February. Today, market participants will watch for Retail Sales figures for October, albeit the data comes with some “delay”, it is a reference for the Q4 GDP.


In a split decision, the central bank (Banxico) decided to hold its benchmark interest rate at 4.25% on Thursday. Banxico said this pause provides the necessary space to confirm a trajectory of inflation convergent to the goal. The inflation target is 3% plus/minus one percentage point. The Mexican peso firmed 0.15% higher in a positive reaction to Banxico’s decision. The MXN also saw support from the Ministry of Finance, which reported that public sector debt is expected to fall to 52.6% of GDP in 2021 from 53.5% this year in its annual financing plan document. The deficit, which stood at 44.5% of GDP in 2019, was blown out this year by the impact of the Covid-19 pandemic on Mexico’s economy.


In the absence of news, the Chinese yuan navigated within a narrow range in a quiet trading session, closing flat against the USD on Thursday. The CNY remains on track to finish the week higher as the dollar languished near two-and-a-half-year lows against major peers. In addition, the CNY is expected to continue to be stable until year-end, and regulators also do not want the speed of appreciation to be too fast. China’s Central Bank said in a recent report that it expects the USD/CNY pair to fluctuate between 6.3 and 7.0 next year, given the possibility of a weaker dollar.


The Brazilian Real climbed 0.50% against the greenback after the central bank updated its GDP forecast for 2020 from -5.0% to -4.4%. The better figure is due to a stronger recovery in the manufacturing and services sectors, along with higher commodity prices. Investors also cheered the Brazilian Supreme Federal Court’s decision in which the local governments (states) can determine the mandatory vaccination against Covid-19. However, the use of force to demand vaccination is prohibited, although restrictions on the rights of those who refuse immunization may be applied. Today, Current Account and Foreign direct investment (FDI) data will be released.


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