Daily Market Pulse

The U.S job market is showing first signs of additional weakness


The U.S. dollar lost some ground (-0.02%) against a basket of currencies for the sixth consecutive trading day. However, the latest macroeconomic data and new developments in Washington should change the USD’s direction. Yesterday, the U.S. reported that Initial Jobless Claims increased from 711,000 to 742,000 while Continuing Jobless Claims declined from 6.8 million to 6.37 million. The U.S job market is showing first signs of additional weakness as the Covid-19’s second wave starts to put pressure on the North-American economy. At the same time, a dispute emerged between outgoing Treasury Secretary Steven Mnuchin and the Federal Reserve over whether to preserve the emergency lending programs designed to shore up the economy, raising fears over the economic recovery and the cooling out of the additional pandemic relief package.


Big increases in Covid-19 cases in Spain, France, Italy, and Belgium, means the backdrop for the EUR is far from rosy. Nonetheless, the EUR has shown itself to be rather resistant against the USD, closing 0.18% higher and erasing previous losses on Thursday. Market participants are waiting to see whether or not the European Central Bank (ECB) is going to unveil a further modest stimulus package to shield the region’s economy. Also, the Euro area consumer confidence report is expected to be posted later today.


The British pound took a hit on Thursday, falling 0.06% against the USD and breaking a sequence of five trading sessions of gains. However, the GBP remains firm even with fundamentals showing a potential deterioration in the U.K. economy in Q4. The ONS Business Survey reported yesterday that 14% of U.K. businesses have low or no confidence that they will survive the next three months. Meanwhile, the leaders of France, Belgium, and the Netherlands urged the European Union to step up their preparations for a no-deal Brexit at the end of the year in case negotiations with the U.K. fail to yield a last-minute breakthrough, which raised concerns among market participants. Today, investors will digest U.K. retail sales data for October.


As the market remains divided between sentiment drivers, the pair USD/JPY has followed a clear downtrend channel for the sixth straight trading session. The Japanese yen rose 0.11% against the USD on Thursday amid an uncertain investment environment. On one hand, positive vaccine news is driving hopes for an end to the Covid-19 pandemic. On the other hand, new infection cases are rapidly accelerating in Japan, the U.S, and Europe, besides there are concerns about vaccine availability in the near future. Meanwhile, Japan's core consumer prices fell 0.7% in October from a year ago, marking the sharpest decline in over nine years, government data showed earlier today. The CPI’s fall signs a sluggish consumption and has cast doubt on the central bank’s view of whether Japan will eventually see prices bounce back towards the central bank’s elusive 2% inflation target.


The CAD printed gains against the USD while Canada’s main stock index fell on Thursday. The Loonie apparently ignored the solid fundamentals and the recent weak employment data. The ADP Employment Change report indicated that private business employment decreased by 79,500 in October with the index remaining in the negative territory since March. On the other hand, Canadian shares were weighed by energy stocks as oil prices slipped on concerns over a surge in Covid-19 cases and the impact of tighter Covid-19-related restrictions around the globe on fuel demand. Market participants are expecting that the pair USD/CAD may consolidate ahead of the virtual Group of 20 (G20) Summit on November 21-22. 


The MXN rose 0.90% against the USD on Thursday, recovering from a two-day losing streak. The Mexican peso remains supported after the central bank recently paused further cuts in its benchmark interest rate, leading investors to either keep holding and buying government bonds, which still show attractive returns. 


The Chinese yuan closed down 0.31% against the USD on Thursday as the risk sentiment improved on U.S. stimulus hopes. Investors reacted mainly to the rapid spread of Covid-19 across the U.S., which led major cities of the country to declare new mobility restrictions.  Elsewhere, China left its benchmark lending rates of one-year and five-year for corporate and household loans unchanged for the seventh straight month at 3.85% and 4.65%, respectively. In general, the CNY’s recent losses do not overshadow the strong fundamentals and high yield differentials, which remain supportive factors for the currency.


The BRL strengthened 1.07% against the USD, touching its lower level in two months on Thursday. Multiple factors are pointing towards near term positivity for the country, such as the stronger-than-expected economic activity recovery, positive news from vaccine candidates and its availability, as well as warmer foreign trade (boosted by China). However, this is counterbalanced by a difficult political landscape that hampers timely progress on fiscal and economic reforms. Investors will continue to keep a close eye on external factors as Covid-19 infections continue to rise and more countries outline economically-damaging lockdowns.


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