Daily Market Pulse

President-elect Biden to be sworn in as the 46th President of the United States


The U.S. dollar nursed losses (-0.29%) as investor mood improved in the wake of a big-spending talk from Janet Yellen. Aside from relief spending, the focus was on comments made by the top U.S. intelligence job candidate Avril Haines about the incoming Biden Administrations’ policies towards China, in which she remarked that the United States should take an “aggressive stance” toward China. U.S politics will come again to the fore today when President-elect Biden will be sworn in as the 46th President of the United States. Although all eyes will be on the event, Biden’s remarks are not expected to have a heavy influence on the moving, since the outlook of the U.S economy under Biden’s administration has been priced in for months.


The common currency appreciated 0.32% against the greenback as investors' mood brightened in the wake of a better-than-expected sentiment survey in Germany and big-spending talk from U.S Treasury Secretary Janet Yellen. The ZEW Indicator of Economic Sentiment for Germany increased in the current January 2021 survey, climbing 6.8 points to a new reading of 61.8 points. The positive figure means, despite the soaring number of Covid-19 infections and reports that German Chancellor Angela Merkel wants to extend the lockdown to mid-February, investors are growing less pessimistic with regard to economic recovery. In the meantime, Italian political intrigue continues.


The Cable printed solid gains (0.32%) on Tuesday, after Bank of England chief economist Andrew Haldane’s prediction that the U.K.’s economy could begin to recover “at the rate of knots” from the second quarter of 2021. Meanwhile, UK Chancellor Sunak is reportedly drawing up plans to boost welfare payments. Both events provided support to the GPB. Today, the U.K inflation release will be at the center stage, with December’s Consumer Price Index figures likely to point to a rather subdued pace of price increases, something that is hardly surprising given the ongoing restriction measures across the world.


The USD/JPY pair edged up 0.2% on Tuesday amid an improved market sentiment, which favored the USD at least against the JPY. It is a busy day ahead with trade balance, exports, and imports figures widely expected, followed by the Bank of Japan interest rate decision. Negative rates, alongside increasingly deflationary Consumer Price Index readings, may drive further policy easing. However, the Bank of Japan (BoJ) faces a tough challenge ahead as room for further easing is scarce. As for the JPY, further moves are likely to depend on how U.S bond yields and risk sentiment develop, so U.S stimulus news may have the biggest influence.


The CAD recovered some losses from the day before, closing 0.19% up against its U.S counterpart on Tuesday amid Janet Yellen’s confirmation hearing and ahead of Joe Biden’s inauguration as U.S President. Both events were seen as the key factors driving flows away from the safe-haven greenback and providing support to the Loonie. Today, Canadian consumer price reports will be released followed by the Bank of Canada’s monetary policy announcement. If prices in Canada increase, as suggested by the recent PMI data, it is likely to see Canada’s Central Bank announcing a micro-cut in its interest rates, which has been for a while at 0.25%.


The Mexican peso fell 0.1% against the USD on Tuesday after National Statistics Institute (INEGI) reported that Mexico's economy likely contracted by 5.4% in December compared with the same month a year earlier. According to INEGI, the pandemic pitched the country into its sharpest downturn in decades, and restrictions on economic activity were stepped up in the Mexico City urban area in December. In regards to the Mexican peso’s price, the MXN rebounded more than 11% between October and December 2020, the best quarterly performance in more than four decades, driven by one of the highest interest rates among emerging market peers. Now, prospects for a US$ 1.9 trillion stimulus package in the U.S, is convincing analysts that the MXN could rise another 4% in Q1/21.


The Chinese yuan printed modest gains (0.2%) against the USD on Tuesday after the People’s Bank of China announced January's loan prime rate, a market-based benchmark lending rate, remains unchanged. However, gains were capped as Biden's choice for the top U.S. intelligence job Avril Haines said the United States should take an "aggressive stance" toward the threat posed by the aggressive and assertive China. Today’s focus will be on U.S President-elect Joe Biden taking office later in the day.


The Brazilian real declined over 1% against the greenback on Tuesday with investors assessing the Covid-19 vaccination’s pace, the inauguration of U.S President-elect Joe Biden in Washington, as well as the interest rate decision by Brazil’s Central Bank (BCB). Though the BCB is leaning towards holding its benchmark rate (Selic) steady at 2% at today’s meeting, the BCB will likely emphasize the need for policy normalization, as the country is experiencing rapidly developing inflation pressures.


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