Daily Market Pulse

Progress in the roll-out of Covid-19 vaccines


The dollar retracted 0.12% to a three-year low against a basket of major currencies, as the USD is expected to benefit less from a pick-up in global trade as world growth rebounds. At the same time, progress in the roll-out of Covid-19 vaccines was boosted by news from a large study in Israel that the Pfizer and BioNTech’s Covid-19 one-shot vaccine appeared safe and effective. This news increased economic optimism but also inflation concerns. On that note, real estate prices and commodity prices are up and significantly higher than even pre-pandemic levels, which undermined the USD and raised expectations of inflation in the short-term. It is a busy day on the economic front, with last month’s durable goods orders report, week’s initial jobless claims, and January’s pending home sales figure.


Broad weakness in the greenback helped the common-currency to climb higher 0.11%, on Wednesday. However, uncertainty in the Eurozone prospect could make it difficult for the pair to consolidate gains. Earlier today, in France, consumer sentiment deteriorated slightly midway through the first quarter, probably linked to the ongoing difficulty in containing the virus, with relatively strict lockdown, and a further increase in hospitalizations in the past month. Consumer confidence in Germany improved midway through Q1, but it remains significantly below its previous peak in August. Still, Eurozone Consumer Inflation Expectation and Eurozone Industrial Sentiment reports, both for February, will be also watched closely.


The Cable printed a fifth consecutive trading session of gains (+0.22%) on Wednesday, surging to the strongest level in three years. Most of the rally has built upon a combination of the UK’s vaccination progress, the roadmap to re-opening, and a more dovish U.S. Fed stance. Regarding MPC members at the Treasury Committee, which yesterday discussed this month's Monetary Policy Report with MPs, no comments triggered a market reaction. Today, no significant data is expected to be released. Meanwhile, speculation is building over what will be included in next Wednesday's government budget. Some media reports are indicating that the U.K will provide GBP 70bn of stimulus on top of extending existing pandemic support programs.  Alongside retraining and jobs and environmental packages, U.K could deliver a 9 billion-pound voucher program to boost high streets and local retailers. 


The US dollar has rallied significantly (+0.6%) over the Japanese yen during the trading session on Wednesday as market participants understand that the JPY is a “safer currency” than the greenback, therefore selling-off it amid the prevalent risk-on mood. Look ahead, risk sentiment should remain positive, posing headwinds for the JPY. Moreover, the USD/JPY pair also might move to the upside, tracking the rise in U.S. Treasury yields. On the economic front, it is a busy day, with February Tokyo inflation, industrial production, and retail sales scheduled for today.  


The Loonie continues playing catch-up with oil prices. Yesterday, the Canadian dollar strengthened 0.6% against the USD, for the fifth trading session in a row. With this gain, the CAD notched a three-year high. Oil prices, in turn, settled 2.51% higher at $63.22 a barrel after U.S. government data showed a drop in crude output after a deep freeze in Texas disrupted production last week. On the corporate front, the National Bank of Canada and Royal Bank of Canada beat forecasts for first-quarter profit on Wednesday, as earnings from the capital-markets business surged due to a trading boom. 


Mexican peso inched up 0.72% against the greenback on Wednesday as data showed consumer price inflation accelerated by less than forecast in the first two weeks of February. The mid-month Consumer Price index rose 0.2% in the first half of February, below the consensus, 0.3%. The year-over-year rate rose to 3.8% year-over-year, from 3.7% in January. In contrast, further MXN’s gains were capped after retail sales fell by 5.9% year-over-year in December, and down from -5.1% in November. Overall, retailers suffered in late Q4, due to the end of the holiday season and the worsening of the pandemic. Looking ahead, the December economic activity index and Bank of Mexico minutes will be released later today, and are set to provide clues for the economic recovery in Q1.


The Chinese yuan moved little (+0.13%) on Wednesday, as its rival U.S. dollar remained stuck in the doldrums after the dovish signals from the U.S. Fed. Nonetheless, it is crucial to note that expectations of rising U.S. interest rates have reduced the spread between the U.S. and Chinese yields, a major factor driving portfolio inflows and supporting the Chinese currency over the past year. Elsewhere, the Chinese yuan has been included in the regulatory currency structure of Russia's National Wealth Fund (NWF), the country's Finance Ministry announced Wednesday. The yuan accounts for 15% of the foreign currencies portfolio of the NWF. Today, in the lack of material figures, investors will continue to pay attention to the U.S. bonds market.


The Brazilian real rose 0.63% against the U.S. dollar despite economic data released on Wednesday that pointed to a cloudy outlook. Consumer confidence in Brazil rose in February for the first time in five months lifted by the start of a nationwide vaccination program and hopes of the government resuming emergency income transfers to the low-income people. On the other hand, the Consumer Price Index (IPCA-15) year-over-year rate rose to 4.7%, from 4.3% in January. Brazil’s inflation picture was improving at the beginning of the year, despite rising oil prices, as temporary shocks - particularly food-related - were fading. But the outlook has deteriorated dramatically in just a couple of days, after President Bolsonaro’s populist actions. His decision to remove the Petrobras CEO has damaged the country's financial and risk metrics and has also increased uncertainty in crucial questions, for instance, the government's efforts to make further progress on reforms. Market players should expect an increase in BRL’s volatility in the upcoming weeks.


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