Daily Market Pulse

Final days of the election


The USD lost ground (-0.16%) against a broad basket of major currencies after Democrat Joe Biden won Michigan and Wisconsin yesterday, putting him on the brink of the White House if he can hold his lead in Nevada. Also, the latest election results have pushed up the Chinese yuan and the Mexican peso, reflecting a softer tone on trade policy - that could be adopted in case of the Biden victory - against countries that often faced the threat of tariffs during Trump's administration. The US 10-year bond, meanwhile, fell by 12.8bps on the day, the biggest one-day decline since March. It is a busy day on the economic front, with Initial Jobless Claims and Continuing Jobless Claims reports. The Federal Reserve, which is expected to keep policy on hold today, is also in focus as traders navigate market volatility.


The EUR edged higher 0.09% against the USD in a volatile trading session after the USD’s rally lost steam due to Mr. Biden’s victory in pivotal states. However, further gains were capped owing to the latest IHS Markit Composite PMI for Eurozone, which signaled that the eurozone’s private sector economy stagnated during October. The index came in 50.0 and was nonetheless down from 50.4 in September and ended a three-month period of growth. Germany was the only nation to register an expansion in private sector activity, with growth here reaching a three-month high. Today, Retail Sales data for the Eurozone will be awaited, but it is likely to have a muted impact.


The GBP fell 0.55% against the USD on Wednesday after a media report that the Bank of England (BoE) is considering negative interest rates. However, this morning, BoE left interest rates unchanged at a historic low of 0.1%. The BoE has also expanded its quantitative easing extension to boost the economy by another £150bn, given the likely impact of the new lockdown in England. Therefore, market participants will digest the BoE’s decision, as well as remain focused on the post-election fallout today.


The Japanese yen was little changed against the USD earlier this morning in Thursday’s Asian session, with investors waiting for further US election results to take positions. Earlier today, au Jibun Bank Japan posted its latest Services PMI data, which showed a slower decline in Japanese service sector business activity, amid a softer fall in new orders. The seasonally adjusted index posted a nine-month high of 47.7 in October, up from 46.9 in September. Although output remained in contraction territory, the latest decline was the softest in the current sequence of contraction.


Traders and investors remained cautious throughout Wednesday’s trading session, as the US election winner remains unclear. The Loonie was little changed (+0.07%) against the greenback. Canada's merchandise trade deficit grew to $3.3 billion in September as both exports and imports climbed higher, but remained below their pre-pandemic levels, Statistics Canada said Wednesday. This data illustrates that the country's trade gap has widened through the Covid-19 pandemic and it is expected to remain (or widen) in the upcoming months as energy prices (oil and gas) remain low.


The Mexican peso closed 0.94% up against the USD on Wednesday for the second trading session in a row, with market participants pricing the rebuilding part of the so-called “Blue Wall” after Democrat Biden won Wisconsin and Michigan, narrowing Trump’s path to victory. As Biden remains a small front-runner, investors might price this as a positive prospect for the Mexican economy, where a Biden win would soften Mexico-U.S relations.


The Chinese yuan soared to its strongest level in more than two years against the USD as candidate Joe Biden edges closer to win the White House in a nail-biting U.S presidential election. The CNY rose 0.05% earlier this morning in Thursday’s Asian session. The CNY's rapid appreciation in recent months could prompt the People's Bank of China to tweak some rules in an attempt to slow the rise in value. Yesterday, China unveiled more details of its plans for the country’s economic, social, and political development over the next 15 years. The full text of the proposal highlighted that President Xi Jinping flagged strong local consumption trends and China is moving faster to open up its financial markets. 


The BRL rallied 1.61% on Wednesday against the USD after candidate Joe Biden won both Wisconsin and Michigan, moving Mr. Biden closer to winning 270 Electoral College votes. The BRL’s leap also was catalyzed after industrial production grew 2.6% in September over August, according to the Brazilian Institute of Geography and Statistics (IBGE, in Portuguese). As a result, the industrial activity in September 2020 was 0.2% above the level of last February, when the Covid-19 pandemic still had not affected industrial production in Brazil. Apart from U.S election results, market participants will wait for the IHS Services and Composite PMIs later today, of which both are expected to show improvements.


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