Daily Market Pulse

Confusion on the stimulus legislation pushes USD lower


Yesterday, the U.S dollar rebounded 0.57% against a basket of major currencies amid a pandemic resurgence that has revived memories of March’s turmoil. The FX markets have priced in a lot of virus-related chaos and the U.S relief package, but even in holiday-thinned trading, things can change quickly. U.S. President Donald Trump sparked confusion as he demanded changes to the bipartisan stimulus legislation approved by Congress, which led the USD to trade lower while Gold prices were up earlier this morning. Coming up, traders will wait for a batch of data, including MBA mortgage applications, Personal spending & income, as well as University of Michigan inflation expectations.


The EUR rally suffered its most severe knock in weeks yesterday, falling 0.66% against the greenback after rumors that the mutated virus was possibly already in Germany, France, and other European countries. Looking ahead, the EUR/USD should react positively to news that France has started to allow truck drivers to deliver goods to and from the UK. Brexit trade talks remain on the radar as officials are trying to wrap up negotiations as soon as today. Turning to data, investors will also react to important numbers from the U.S, including personal spending and income, as well as mortgages.


The British pound suffered another sharp slide (-0.78%) against the USD on Tuesday after several countries banned travel to and from the U.K, raising fears of food shortages in Britain if the restrictions dragged on. However, there were two positive news headlines last night. First, France has started to allow truck drivers to deliver goods to and from the UK, unblocking the flow of trade. Second, the UK and the European Union continued their Brexit talks with PM Boris Johnson and Ursula von der Leyen talking on the phone. Fundamentally, because of the potential risks of a no-deal Brexit, there is a likelihood that the two sides will reach an agreement in the next few days.


The U.S dollar held firm against the JPY after Monday’s drop. The Japanese yen edged down 0.32% on Tuesday as investors were eagerly waiting for the Bank of Japan (BoJ) Minutes, which will be released later today. The BoJ minutes of its October policy meeting will be quickly followed by the BoJ Core Consumer Price Index. Inflation remains at very low levels in the country, and the index is expected to remain mired at 0.0%. This reflects weak economic activity, as Japan’s economy struggles with an economic downturn and a resurgence in the number of Covid-19 infections.


The Canadian dollar eased 0.39% on Tuesday in a short trading week, tracking strength in the U.S. dollar in overseas FX markets, as concerns that a new mutated Covid-19 will slow the global oil demand, as well as cool down the global economic recovery. Yesterday, January West Texas Intermediate (WTI) crude oil futures tumbled 2.23%, to $46.90 per barrel. Since oil and gas remain the country’s primary exports, any significant change in these commodity prices — high or low — should affect the CAD and the broader Canadian economy.


Stricter restrictions implemented all over the U.S and LatAm have fueled concerns of more economic pain, undermining the brighter prospect for a Mexican economic recovery. The Mexican peso inched down 0.9% against the USD on Tuesday while shares index, IPC, dropped 1.37%, with Mexican telecommunications company Axtel falling about 12%, a day after the firm announced it had scrapped a plan to sell the business. Mexico will receive an initial batch of Pfizer Inc.’s Covid-19 vaccine today, putting the country in a neck-and-neck race with Chile to become the first Latin American nation to apply the life-saving treatment. Pfizer will send more than 1.4 million vaccines to Mexico by the end of January.


The Chinese yuan traded 0.06% higher on Tuesday, remaining firm against the greenback even amid concerns that a new Covid-19 strain will slow the global economic recovery. Although this mutated virus has affected risk appetite, it was unlikely to reverse the strong yuan trend. Domestically, China's central bank will likely scale back support for the economy next year and cut down on credit facilities. However, the recent debt corporate defaults have signaled that some Chinese companies are still facing growth challenges.


The Brazilian Real slipped 0.73% against the USD for the third straight day amid fears over a new variant of Covid-19 on Tuesday. Also, the latest FGV Consumer Confidence Index pressured the BRL after posting its third consecutive monthly decline in December, reflecting a more negative perception of the current situation and the coming months. It is worthy of note, the mid-month consumer price index IPCA-15 ends the year with a 4.23% increase, from 3.91% in 2019 – food, electricity, and gasoline rose the most. As the year draws to an end, investors remain frustrated with the lack of progress on the government’s reform agenda, as well as concerned about the fiscal health of the country.


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