Daily Market Pulse

Vaccine euphoria vs. rising coronavirus cases


The dollar slipped 0.11% for a fifth straight trading session on Wednesday, touching a more than one-week low, as positive vaccine news from the Pfizer/BioNTech offset the surge in Covid-19 cases and tighter economic restrictions across the country (New York City shut schools). However, industrial production and retail sales data released earlier in the week highlighted the fragility of the U.S. economic recovery. In line with the recent data, New York Federal Reserve President John Williams said that the U.S remains in a “severe recession” and any growth will be vulnerable to swings in infection rates. He also reiterated the bank would use all its tools to help the economy to recover. Investors will look to U.S. jobless claims data, due later in the day, which is expected to dictate the Fed’s next steps. 


Although the EUR rallied initially on Wednesday, it gave back the gains to close down 0.08% against the USD. Eurozone consumer prices decreased for a third straight month in October, with the annual inflation standing at a negative 0.3%, final data from Eurostat confirmed on Wednesday. Thus, the consumer prices are already falling in a worrying sign for the European Central Bank, which is already running an ultra-accommodative policy and has scope to offer a further dovish tool. European Central Bank President Christine Lagarde will attend a European Parliament Committee hearing in Frankfurt later today.


The GBP was up 0.21% against the USD for the fourth straight trading session on Wednesday. Although there are different readings from Brexit headlines, the GBP had been boosted by hopes of the U.K. and the European Union reaching a post-Brexit trade deal in the upcoming weeks. In contrast to Eurozone consumer price, UK inflation figures showed an increase in October which could help the GBP/USD to continue to trend higher. Looking ahead, some news on Brexit is expected today, from the EU leaders meeting this evening.


The safe-haven JPY has recouped almost all of its losses from last week, as investors continue to worry about rising Covid-19 deaths, begin to wager on more monetary stimulus from the U.S. Federal Reserve. Hence, investors started to reduce long positions in risky assets and switched to safe-haven assets. The Japanese yen inched up 0.33% against the USD on Wednesday. As more positive vaccine news from Pfizer/BioNTech raised optimism among market participants, Tokyo raised its Covid-19 alert to the highest of four levels, as daily infections in the Japanese capital increased by more than 500 for the first time amid a resurgence of the pathogen across the country. Investors will look to October National inflation (CPI) data, due later in the day, which is expected to dictate the Bank of Japan’s next steps.


The Loonie posted gains on Wednesday, recovering some lost ground on Tuesday's trading session. The CAD closed up 0.16% against the USD on the back of positive inflation news, as the October Consumer Price Index in Canada rose slightly to 0.4%, after two consecutive declines of -0.1%. This figure marked the first gain by CPI in four months, as well as a positive sign as to growth in Q4. However, the CAD gains were capped by serious concerns that a resurgence of Covid-19 in the country could have a severe impact on the normally robust Christmas shopping season. It is another busy day on the economic front, investors are waiting for the Retail Sales and New Housing Price data to be reported later today. 


The Mexican peso edged down 0.27% against the greenback on Wednesday after concerns about the steady increase in Covid-19 cases in the U.S and Europe, with the imminent imposition of new lockdown measures (New York is closing public schools again due to the virus).  The growing risk of new full mobility restrictions in its neighbor, the U.S, should lead investors to reduce long positions in risky assets and switch to safe-havens, such as USD and JPY, putting pressure on the MXN and its Latin American peers.


Although the CNY inched down 0.05% against the USD on Wednesday, the Chinese yuan sits at its strongest levels in more than two years, owing to the faster Chinese economic recovery, People's Bank of China (PBoC) policy monetary stimulus, and the recent drop in the USD against its main peers. According to HSBC Holdings Plc’s Paul Mackel, the yuan is now one of the most actively traded currencies in the world and should be included in the top tier of foreign-exchange as China opens its capital markets to the world. Moreover, in China itself, daily volume for the onshore yuan climbed to $45 billion on Nov. 16th, the highest since December 2018, according to data compiled by China Foreign Exchange Trade System. Elsewhere, the PBoC Loan Prime Rate report will be released later today, it is expected that China will keep it unchanged.


The Brazilian real slid down 0.65% breaking a sequence of three trading sessions of gains against the greenback on Wednesday. The BRL’s drop was seen as a technical correction as the external and domestic scenario, both remained quiet on Thursday. Nonetheless, the Brazil Central Bank (BCB) monetary policy director, Bruno Serra Fernandes, said that the BCB is closely monitoring the foreign exchange (FX) market to define its role in offering liquidity in foreign currency and it will intervene to protect the real if the FX market is unable to absorb the "large" outflow of BRL expected in the next month as local banks unwind their so-called over hedge position.


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