Daily Market Pulse

Complex scenario weighing on the greenback


The USD dropped 0.24% to a one-week low on Tuesday against a basket of major currencies, amid a complex scenario weighing on the greenback. This includes the return of Covid-19 restrictions in some U.S. states, worries about a smooth transition for President-elect Joe Biden, as well as optimism about potential Covid-19 vaccines. Although optimism over a Covid-19 vaccine offset some issues in the long term, the U.S has been struggling to combat the rising number of daily new virus infections in recent months. Thus, the prospect for the USD remained downbeat with the Federal Reserve and U.S. Congress poised to do more to ease Covid-19's economic damage.  Data showing that U.S. retail sales raised less than expected in October showed another sign that the nation’s economic recovery is losing steam. Retail sales rose 0.3% last month, the Commerce Department said on Tuesday.


The Euro climbed 0.07% against the USD on Tuesday, backed by optimism over another Covid-19 vaccine, but mainly on expectations that the European Central Bank (ECB) is likely to do a bit of loosening soon. Nonetheless, traders and investors seem to have overlooked the challenges Europe faces in the middle of a second lockdown. On the macroeconomic front, consumer and product price index are scheduled for later today which will signal the effect of the ECB’s dovish stance on economic activity.


The Sterling closed higher 0.38% against a softer USD on Tuesday. The GBP saw some support after the Bank of England’s Governor Andrew Bailey delivered an optimistic speech at The City UK’s national conference. He said that Covid-19 may be “the agent of change” that finally resolves Britain’s lasting productivity problem, where he pointed to “the possibilities of new business models, products and ways of working” that could have a dynamic impact on living standards. Today, the Pound is expected to remain at the mercy of Brexit headlines, which has been adding volatility in the trading session. In addition, investors will digest the recent UK consumer price index, which rose by more than expected in October, fueled by an increase in clothing and food prices. Additionally, BOE’s Governor Andrew Bailey is scheduled to speak in a public event.


The JPY rose nearly 0.4% against the greenback on Tuesday, remaining stronger for the fourth straight trading session. The JPY hardly reacted to recent vaccine developments and its recent gains illustrate that there is a lot of concern out there when it comes to global growth as in the US, hospitalizations have hit record highs while the number of cases keeps rising at its fastest pace. On the macroeconomic data front, Japan's exports in October bounced back to just below the levels seen before the Covid-19 pandemic, however, the large-scale economic restrictions in the U.S could have a serious impact in the upcoming months, cooling out the fresh good performance, where the US is one of the nation's largest trading partners.


As financial markets’ enthusiasm for potential Covid-19 vaccines has been fading rapidly, oil prices have also been losing steam. This background put pressure on commodity-related CAD on Tuesday, which closed down around 0.23% against the USD. However, losses were limited after data showed Canadian wholesale trade increased by 0.9% month-over-month in September. The report was better than the analyst consensus which called for growth of 0.4%. Today, market participants are still digesting the speech of Bank of Canada’s Governor Tiff Macklem on Tuesday, who called on the country’s banks and businesses to act more quickly on disclosing their exposure to the risks posed by global warming. In addition, investors are waiting for the Consumer Price Index to be reported later today.


The MXN closed down 0.30% against the USD on Tuesday as financial markets enthusiasm for potential Covid-19 vaccines has been waning rapidly. Despite slight losses, the Mexican peso remains one of the best performing emerging currencies in recent months. In fact, since July, the MXN has appreciated more than 11% against its US counterpart, reinforced by the rotation towards risk assets. In the absence of economic data, the Mexican peso is set to be driven by external factors.


The CNY edged higher 0.42% on Tuesday, remaining firm against the USD and climbing to its strongest level in more than two years. The Chinese yuan’s strength is partly due to the premium that Chinese government bonds offer over American debt is near the highest on record, which attracts foreign inflows and also supports the yuan. The weaker USD also provides another boost. Today, all investors are still closely monitoring the nation’s economic recovery from the Covid-19 pandemic and assessing if this rebound will continue in the long run.


The BRL jumped as much as 1.61% against a weaker USD for the third trading session in a row on Tuesday. The Real gained after the Ministry of Economy raised its 2020 GDP forecast to -4.5% from -4.7%, citing strong Q3 activity which is extending the economy's 'V-shaped' recovery and will improve the annual performance. The Economy Minister, Paulo Guedes, also said the federal government will accelerate fiscal and bill reforms, as well as privatization to restore economic credibility in Brazil. During the trading session, the BRL also gained support from central bank president Roberto Camps Neto, who said the bank is monitoring inflation developments, but remains comfortable with the outlook as the transitory effects from food prices will soon fade. Today, markets will focus on Foreign Exchange Flows data in the first half of November.


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