The U.S. Dollar Index that tracks the greenback against a basket of major currencies inched up 0.19% on Monday. The risk aversion mood sparked a demand for the USD while U.S shares closed in the red as market participants appear to have focused their attention back on the pandemic situation. Meanwhile, excitement about the $1.9-trillion Covid-19 stimulus package is flaking away. According to media reports, Democrats and Republicans are questioning the need for some of the spending. Today’s economic calendar will bring January’s consumer confidence report and The Federal Open Market Committee (FOMC) will begin their two-day policy meeting.
Ongoing political conflicts in Roma and worries around the Covid-19 virus mutations across Europe weighed on the common-currency on Monday, which weakened 0.26% against the USD. The dismal German Ifo business climate data released yesterday also added to worries about the economic fallout from the current round of strict Covid-19 restrictions and dampened the market mood. Looking ahead, Italian Prime Minister Giuseppe Conte will resign this morning to avoid a damaging defeat in the Senate and maneuver to return at the head of a new government. The political instability is likely to prompt concern in Brussels and Frankfurt. Meanwhile, French President Emanuel Macron is expected to announce a third national lockdown on Wednesday.
The GBP slid 0.06% against the greenback on Monday reflecting the impact of Covid-19 restrictions on the economy, as well as the risk that the U.K. tightens measures further. However, those concerns are offset partially due to the U.K.’s efficient vaccination program with over 9.5% of the population receiving at least one dose. Meanwhile, Moderna said its vaccine will protect against both the South African and U.K. strains of the Covid-19. Today, the critical thing to pay attention to is the labor market figures. The U.K’s unemployment figure is expected to rise to 5.1% up from 4.9% the quarter before.
The USD/JPY pair went back and forth during the trading session on Monday, but ended the day steady (+0.03%) on Monday. Although the Japanese yen has taken a hit from soft economic data, the JPY is considered a safety currency when market players become jittery about the global economy. Thus, the ever-rising numbers of global Covid-19 cases and doubts over both the size and speed of further U.S relief packages fueled the risk-off sentiment. Today, the monetary policy meeting minutes will be eyed for any clues that Prime Minister Suga will deliver another package of fiscal stimulus near the middle of the year, as there are new elections this autumn.
The CAD was firm against the USD on Monday after equity market volatility triggered demand for the U.S dollar as investors became anxious about prospects for U.S fiscal stimulus. The VIX, which measures the market’s expectations for volatility, jumped by more than 10%, while the safe-haven U.S. dollar gained against a basket of major currencies. West Texas Intermediate (WTI) settled nearly 1% higher at $52.77, which favored the Loonie, but further gains were capped by worries that renewed lockdowns will reduce demand.
The Mexican Peso weakened 0.54% against the greenback on Monday, extending losses to a third straight trading session, after a spike in Covid-19 infections hurt appetite for local assets. The focus was also on the health status of President Andres Obrador, which came after he tested positive for the virus. On the data front, economic activity in Mexico advanced a little further in November, showing a more defined moderation. Hence, the economic activity index reported an annual contraction of 3.9% in November, after a decrease of 5.3% in the previous month. Retail sales figures will be widely expected later today.
The CNY made small gains (+0.05%) against the U.S dollar on Monday. Speaking at a virtual meeting of the World Economic Forum (WEF), Chinese President Xi Jinping said the global recovery from the Covid-19 pandemic was "rather shaky" and the outlook remained uncertain. Also, President Xi said that governments worldwide must do more to work together to put the global economy back on track. Looking ahead, market players will look for industrial profit figures later today. The recent CNY’s strength has raised concerns among exporters as it has eaten into profits as the vast majority of exporters take payment in the USD, but pay suppliers and staff in yuan.
São Paulo markets were closed for the anniversary of the city on Monday, which resulted in light trading volumes and thin liquidity across the local markets. The Brazilian Real closed 0.60% down against the USD for the third straight session. The day was marked by the resignation of the president of Eletrobras, Wilson Ferreira Jr, which raised concerns about the privatization program of the Brazilian government. In Wall Street, Eletrobras’ shares fell more than 10%. In the background, rather slow progress on the vaccine front and the prospect of more lockdowns should weigh on the BRL. Today, Brazil’s Central Bank Meeting Minutes will be eyed for any clues about forward guidance.