Daily Market Pulse

The weekly U.S. labor market data was supportive for the USD


The Labor Department on Thursday reported that weekly initial unemployment claims fell -55,000 to 787,000, showing a stronger labor market than the expectations of 870,000. The weekly U.S. labor market data was supportive for the USD. Thus, the Dollar Index which tracks the USD against a basket of other major currencies finished up 0.38%, after having registered its fourth consecutive session of declines. The USD also found support after U.S. Existing Home Sales increased by 9.4% month-over-month in September compared to analysts consensus which called for growth of 5%. The housing market remains very strong. Meanwhile, rising Covid-19 cases globally kept the investors on the edge, benefiting the safe-haven USD. In the final U.S presidential debate, both candidates struck a more civil tone than in the chaotic first debate on Sep. 29. Democrat nominee Joe Biden, who is ahead by nearly 10 points in nationwide polls, had to avoid any debate-defining gaffes that could change the perceived status quo.


On Thursday, after four consecutive sessions of gains, the euro fell slightly (-0.38%) against the USD on technical correction, but also influenced by raised concerns over the sharp rise in Covid-19 infections across the continent. Spain's Health Minister said the spread of Covid-19 is out of control in certain parts of Spain. France reported more than 40,000 new cases for the first time, while Italy, Germany, and at least eight other nations also recorded record infections. Today, on the economic data front, investors and traders will be waiting for IHS Markit Flash PMI reports for the Eurozone, which is likely to show weaker data and this could trigger a more aggressive decline in the euro as other previous indicators have shown that the eurozone's economy is losing momentum.


Having hit six-week highs on Wednesday amid Brexit optimism, the GBP pulled back a bit against the USD on Thursday. The GBP was down 0.48% after investors cooled down and reassessed that the major issues, such as fishing, state aid, and scientific collaboration, are still the sticking points to reaching a final agreement. The sterling’s declines were limited after the UK CBI Industrial Trends Survey on Orders improved to -34% in October vs. September’s -48%, showing general improvement and indicating that the manufacturing sector is resilient early on in Q4. Also, the U.K. signed a trade deal with Japan, its first with a major economy since Brexit. The deal largely preserves the terms under which the U.K. traded with Tokyo as part of the EU and it is expected to boost Britain’s GDP by 0.07% compared to 2018 levels over the next 15 years, according to the U.K government.


The JPY slipped to 0.26% on Thursday, after jumping to a one-month high against the USD day before. The JPY dropped on the back of the Bank of Japan (BoJ)’s semiannual financial system report, where the BoJ reiterated its assessment that Japan’s financial system is maintaining stability on the whole. Investors understood that the Japanese financial system is likely to stay robust even in a highly uncertain global environment, thus encouraging market participants to reduce the safe-haven demand of the yen. Earlier this morning, the HIS Market reported that the Jibun Bank Flash Manufacturing Output Index stood at 47.0, increasing from 46.0 a month earlier, which means that activity in Japan's manufacturing sector improved slightly in November but remained in contraction territory.


The CAD ended up posting a small gain of 0.09% against the USD as strong oil prices provided support to the currency. In the absence of Canadian economic data and political events, USD/CAD traders will continue to monitor the ongoing U.S. aid package negotiations. U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have been holding talks, but the prospect of a deal between the Democrats and Republicans are dimming. Although a stimulus agreement would be good news for President Donald Trump, Republicans senators could be concerned about their campaigns, where a massive spending package will not win votes among conservative voters.


The MXN rose as much as 0.71% against the USD for the fourth consecutive trading session on Wednesday, reaching its highest level since September 17. Meanwhile, Mexican shares had mixed results with a predominance of losses due to increased fears that new measures to restrict economic activity may be adopted in both the U.S and Mexico to try to contain the pandemic's progress. Yesterday, investors also digested the country's latest inflation data. Mexican annual inflation came in at 3.99% - its highest level in 14 months -, which means that consumer prices quickened faster than expected in the first two weeks of October, pushing the rate at the central bank's tolerance threshold (3%+/-1%). Rising inflation will likely prompt Mexico’s central bank to slow down the pace of its fiscal stimulus. For today, the market’s attention will be focused on Economic activity and Retail Sales.


The CNY saw a correction on Thursday, with the currency weakening 0.52% against the greenback. The Chinese yuan’s correction came after the currency had rallied more than 6% on the USD since May, fueling market speculation that People’s Bank of China (PBoC) would roll out monetary policy measures shortly to contain CNY’s appreciation, as a too-strong currency could negatively affect Chinese exporters. President Xi Jinping and members of the Central Committee will chart the country’s economic course for 2021-2025 at a key meeting starting on Monday, seeking to balance growth and reforms to avoid stagnation amid an uncertain global outlook.


The Brazilian real strengthened 0.31% against the greenback in a volatile trading session on Thursday as the latest economic data showed that Brazil’s economy is recovering at a relatively solid pace. China is creating a favorable environment for the recovery of Brazil’s economy in the aftermath of the Covid-19 pandemic as Brazil continues to supply China with agricultural products. Agribusiness and exports are engines of the country’s economy. On the economic front, investors will keep a close eye on September Current Account and Foreign direct investment figures, which are expected to be released today.


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