Daily Market Pulse

USD falls from a two month high


The USD fell from a two-month high against a basket of major currencies on Monday as stocks gained some ground, after four consecutive weeks of losses. It is a busy day ahead, with economic data, U.S-China tensions, Covid-19 updates, and U.S presidential debate, impacting the USD’s direction.

Today, investors will keep an eye on the Conference Board Consumer Confidence Index, which will provide its latest monthly snapshot of the US. Consumer confidence. Last month the index dropped to 84.8, it’s the lowest reading since May 2014, reflecting the resurgence of Covid-19 cases throughout the country that has heightened pessimism. In September, the index is predicted to rise to 82.9. Tuesday night the focus will be switched to the first U.S presidential debate. It is likely that the New York Times investigation into President Donald Trump’s tax records, which revealed a string of financial losses that helped him avoid paying taxes, will be hotly debated.


Big increases in Covid-19 cases in Spain, France, and Belgium, means the backdrop for the EUR is far from rosy. In Spain, the national government and authorities in Madrid are locked in a standoff over how to tackle the second wave of Covid-19 in and around the capital.

Meanwhile, in France, a series of new measures began on Monday, with all restaurants, cafes, and bars in the second-most populated French city, Aix-Marseille, now needing to be closed and remain shuttered for 15 days. The day was also marked by Christine Lagarde’s comments at the European Parliament hearing, where she told the EU Committee on Economic and Monetary Affairs that the current EUR’s value is having an impact on inflation and reiterated the central bank will continue to monitor movements in FX markets. The EUR lost more than 200 pips and registered its lowest close since early July. Market participants will closely watch the Eurozone Consumer Confidence, which will be published later today. According to the market, the euro area’s economic confidence is forecast to rise to 89.0 in September from 87.7 in August.


After Brexit talks continued on Monday, there were conflicting views expressed about the likelihood of a deal. Tory MP David Davis’ said “So at the moment I think is quite likely we will get a deal” while Irish leader Michael Martin’s commented, “I am not that optimistic if I am honest”.

Although there are divergent opinions on this issue, now the market is feeling more positive about trade talks between the UK and the EU. The new positivity that the UK is can secure a trade deal with Europe before the December 31 deadline, has led the GBP to rise as much as 1.4% against the USD on Monday. The Sterling also found support from a pushback against the prospect of negative interest rates from a senior Bank of England official.


The JPY closed flat on Monday, possibly due to rising US-China tensions, after reports that the U.S. administration placed new restrictions on exports to Chinese chip-maker SMIC.

Earlier this morning, the Bank of Japan (BoJ) published its “Summary of Opinions” at the Monetary Policy Meeting on September 16 and 17, 2020, which highlighted a couple of economic developments, “The pace of economic recovery has been only moderate, and therefore we still cannot be optimistic. This is because domestic demand, mainly in services consumption, will likely remain at a low level due to the impact of Covid-19, while exports and production have been bottoming out, reflecting developments in overseas economies”. Also, the central bank added, “It is appropriate for the Bank to maintain the current monetary policy for the time being and, as before, take additional measures if necessary while closely monitoring the impact of Covid-19.” Today, not only will the market digest all the comments from the “Summary”, but also it is likely to react to the Consumer Price Index for Tokyo, which reported inflation at 0.2% in September, far behind of BoJ’s 2% national target.


The Loonie strengthened 0.08% against the greenback on Monday. The CAD found support after crude-oil futures ended higher (0.55%) on Monday, recovering some of last week’s losses. Even so, the CAD’s gains were capped by Monday’s sharp increase in the daily Covid-19 numbers, with the addition of 750+ new cases, pushing Authorities in Quebec to announce strict activity limits for Quebec City and Montreal. The restrictions will shut down the Bars, casinos, restaurants, Museums, and Libraries while also barring the house guests. Canada Industrial Product and Raw Material Price Indexes are scheduled for later today. 


The MXN weakened 0.4% versus the USD on Monday even as the unemployment rate eased. Mexico’s unemployment rate fell slightly to 5.2% in August, from 5.4% in July, amid a gradual revival in the economic activity of the country, official data showed on Monday. At the same time, the national statistics agency published the Mexican trade balance, which presented a surplus of around US$6.1M in August, a number higher than the US$5.7M in July.


Asian stock markets mostly gained as CNY traded flat on Monday, after stronger economic data on Sunday showed that profits of China’s major industrial firms maintained a steady recovery for a fourth consecutive month in August.  Investor sentiment was also lifted after a U.S federal judge blocked the Trump administration’s ban against the popular Chinese-owned TikTok app from U.S app stores early on Monday. Meanwhile, the U.S has imposed restrictions on exports to China’s biggest chip maker SMIC after concluding there is a risk of military use. The move by the U.S government clearly illustrates the U.S concerns over China’s plans to boost its own chips industry, where today, it is heavily dependent on Western tech.


The BRL traded 1.42% lower against the USD on Monday, to extend a three-week losing streak. The current level is the highest closing value for the pair USD/BRL since May 20. Investors were expecting that Jair Bolsonaro’s government and its allied base could reach a consensus on the tax reform bill on Monday, however, the announcement made was to inform how the government will fund the new social program “Renda Cidadã”, which will replace “Bolsa Família. The fresh announcement weighted on BRL and led to further concerns over fiscal policy.


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