USD

President Donald Trump signed a $2.3 trillion Covid-19 relief and government funding package late on Sunday, days after suggesting he would not sign the bill. Trump demanded a vote in Congress to replace $600 in direct payments with $2,000 – a request that is unlikely to pass both chambers. Despite approving the next round of stimulus measures, the USD should continue to show signs of weakness against its major peers amid thin holiday trading. No relevant economic data is due out this week.

EUR

The European Union and the UK finally reached an agreement on Thursday 24th, just before the UK leaves the bloc on December 31st. The news of the trade agreement ended worries about a potential “hard” Brexit and helped improve the market sentiment. However, with light trading sessions during Christmas week, any gains by the EUR will likely be limited. No relevant economic data is due out from the euro area countries today.

GBP

The U.K. last week clinched a historic Brexit trade deal agreement with the European Union after exhaustive negotiations that lasted more than four years. MPs will vote on the deal in Parliament on 30 December. The agreement is good news for the British Pound as it removed the uncertainty in the huge trading relationship between the sides. However, concerns over the mutant Covid-19 strain weighs on the GBP even as markets are off in the UK.

JPY

Japan’s industrial output growth thwarted in November after rising for five months, underscoring the fragile Japanese economic recovery due to a recent resurgence in Covid-19 infections. The weaker macroeconomic data should weigh on the JPY. Nonetheless, market sentiment improved after U.S President Donald Trump signed a Covid-19 relief package into law, which could lead the USD retreat and JPY to be more dictated by risk sentiment. Volume is expected to be light because of another holiday-shortened week with a bank holiday in Japan on Wednesday and Thursday.

CAD

Even though a grim tone around crude oil prices persists, which usually undermines the Loonie, the market sentiment improved after news that the U.S President Donald Trump signed a $2.3 trillion COVID-19 relief and government funding bill. The Brexit deal reached last week also contributes to the boosting of investors' confidence, which weighs on the USD's safe-haven status and provides support to the CAD.

MXN

Mexico has won the Covid-19 race in Latin American and has become the first country in the region to roll out the first vaccinations. The Mexican government expects to wrap up vaccinations for healthcare workers by early January, before moving to inoculate elderly people in the month’s second half. This is seen as bullish for the MXN and could potentially lead the pair to extend its recent strength.

CNY

The confluence of several factors, such as China’s first in first out recovery, the favorable yield differential between China and the U.S, as well as the escalation of U.S- China tension, has led the Chinese Yuan to outperform in 2020 against the greenback. The prospect for the CNY is still bright for 2021 and given China’s increasing focus on independence of monetary policy, it will gradually loosen its tight control on currency volatility. This means, in turn, the CNY will likely be susceptible to overshoot.

BRL

Hamilton Mourão, Brazil’s vice president, has tested positive for the Covid-19 when the country registered 344 new Covid-19 deaths on Sunday. Brazil now has nearly 7.5 million confirmed cases, and a total of 191,139 deaths from the virus since the outbreak began, according to the health ministry figures. While Chile has already started vaccination and Argentina schedules its first doses on Tuesday, President Bolsonaro has however doubted the effectiveness and ironized the potential side effects of the vaccine, sparking even more confusion among the population. However, the strong economic recovery in Brazil should continue to support the trend of strengthening the Brazilian currency and overshadow political noise. Thus, positive fundamentals should continue to prevail in 2021.