USD

The USD is trading lower against the EUR, JPY, and CAD but remains strong against the GBP. The greenback gave up gains from earlier in the week as equity markets rallied with the S&P having its best day since June. While traders will be focusing on the ECB meeting in Brussels later this morning, the US Labor Department has released the weekly jobless claims at 884,000 for the second week. The Dow finished yesterday up over 430 points and traders seemed confident moving out of the dollar and back into equities. Dow Futures were slightly lower overnight, indicating an opening of around 65 points lower this morning. After yesterday’s move, it would not be surprising to see the equity markets take a breather. US Treasury yields are lower this morning, as the 10-year note trades at 0.6821%, while the 30-year bond is trading at 1.4336%. There is a Senate vote expected today on a “slimmed-down” Republican coronavirus relief package after discussions between the White House and top Democrats over a larger bill hit a stalemate. This bill is expected to be worth around $500 billion and for it to pass, seven Democratic senators would need to vote on it. While investors will pay close attention this morning to jobless claims, the ECB meeting will give direction to the USD. A dovish statement could see the EUR fall and USD rise.

EUR

EUR/USD is trading higher this morning ahead of the ECB meeting. The bank is set to convey a more confident message despite rising coronavirus cases. Technically, the rally this morning has seen the single currency move above the moving averages and the 50-day is about to cross the 100-day. RSI has been rising steadily over the last few hours and is now at the 70-level. On Wednesday a report that the ECB will express optimism about the recovery lifted the EUR. Christine Lagarde, President of the European Central Bank, will present new economic forecasts today. While economies have been coping better than expected with the impact of COVID-19, the damage is significant, and rising cases in Europe continue to be a cause for concern. Lagarde will likely be asked about the exchange rate after her Chief Economist Philip Lane said he is watching it. Comments about FX are uncommon and tend to rock currencies even if the central bank does not plan a direct intervention. Regarding policy, the ECB is not expected to change anything. The deposit rate will remain at -0.5%. The main refi rate and the marginal lending rate will also stay unchanged at 0% and 0.25% respectively. The PEPP program will continue to run with a total package of 1.35 trillion euros. The comments will determine the direction today. 

GBP

GBP/USD remains pressured in overnight trading over concerns regarding Brexit uncertainties. The pound has moved off the lows seen in early Asian trading and is currently trading between the 50 and 100-day moving averages. Some profit-taking has seen the pound edge higher, but the momentum is still to the downside though RSI has moved to an overnight high of 60. According to reports overnight, the EU is considering legal against the UK. According to a draft working paper by the EU, UK’s Internal Market Bill is seen as a “clear breach of substantive provisions” of the Brexit withdrawal agreement. European Commission Vice-President Maroš Šefčovič will travel to London today to meet UK Chancellor of the Duchy of Lancaster Michael Gove for an ”extraordinary meeting of the Joint Committee” that oversees Brexit implementation. The EU said it “seeks clarifications from the UK on the full and timely implementation of the Withdrawal Agreement”. EU’s chief negotiator Michel Barnier, arrived in London yesterday, is expected to confront the UK counterpart David Frost over the issue as well. Adding to the UK pressure regarding Brexit, US Speaker of the House Pelosi, stated yesterday the there is "absolutely no chance" of Congress approving the UK's trade deal with Washington if Prime Minister Boris Johnson overrides the Brexit agreement. 

JPY

USD/JPY traded quietly overnight, moving slightly lower as all moving averages converged and the currency is currently trading in the middle of a small overnight range. RSI is at 48, where it has been for most of the overnight trading period. According to an opinion poll conducted by the daily Mainichi Shimbun and the Social Survey Research Center, Japanese Chief Cabinet Secretary Yoshihide Suga has emerged as the frontrunner to succeed Prime Minister Shinzo Abe. About 44% of respondents, when asked who they would pick as Abe’s successor, responded that they would choose Suga, while 36% favored former Defense Minister Shigeru Ishiba. Suga also holds a clear lead among supporters of the leading Liberal Democratic Party (LDP). The LDP leadership election will be held on September 14. USD/JPY may remain rangebound for the rest of this week.

CAD

USD/CAD has moved higher in overnight trading as oil prices once again are lower. Brent crude futures fell $0.17 to $40.62 per barrel, after rising 2.5% on Wednesday. U.S West Texas Intermediate crude futures fell $0.24 to $37.82 per barrel, after rising 3.5% on Wednesday. Continued concern above viral cases hurting economic recovery has weighed on oil and subsequently the Canadian Dollar. The Bank of Canada on Wednesday held its key overnight interest rate steady at 0.25%, as expected, and said the bounce-back in economic activity in the third quarter was looking to be faster than previously anticipated. Despite that slight optimism, the central bank noted in a statement with the rate decision that as the Canadian economy moves from the recovery phase to a bumpier recuperation phase it will continue to require extraordinary monetary policy support. Canada will begin this month to start transitioning people off its main COVID-19 emergency income support program and onto traditional unemployment benefits, which critics say will leave some Canadians with less money. BoC Governor Tiff Macklem will give a speech on the uneven effects of COVID-19 later today. The central bank also said that both the global and Canadian economies are evolving broadly in line with the scenario it set out in July, but noted a stronger than expected rebound in the United States, Canada’s largest trading partner. Despite an upbeat central bank report, the loonie may stay vulnerable as long as oil prices remain depressed. 

MXN

Mexico’s finance minister on Wednesday defended his 2021 budget, calling next year’s growth estimate responsible, as rating agency Moody’s warned the government’s austere approach to public finance “was not sustainable.” The finance ministry on Tuesday delivered a budget proposal that would keep a lid on spending and forecasts only partial recovery for an economy hammered by the COVID-19 pandemic. “It’s a responsible estimate,” Finance Minister Arturo Herrera said at the president’s daily news conference. However, Ariane Ortiz-Bollin, a sovereign analyst for Mexico, said the lean budget meant the rating agency was now more worried about Mexico’s economic growth than debt. “It is not sustainable,” Ortiz-Bollin said. “It can’t be repeated every year.” The budget forecast Mexico’s economy, Latin America’s second-largest, would contract 8% this year, a somewhat rosier view than the central bank’s worst-case scenario of a 13% slump. Moody's, along with other rating agencies, has Mexico one notch from losing its investment-grade rating. 

CNY

According to an article in the Global Times, China could give priority to expanding the scale of currency swaps with the Association of Southeast Asian Nations (ASEAN), Chinese State Councilor and Foreign Minister Wang Yi told his counterparts from the bloc, a move that could sidestep the US dollar and other foreign currencies in bilateral trade. The move was just part of a slew of efforts to boost regional cooperation in a wide range of areas from trade to the digital economy to civil aviation that were proposed during the video conference between Wang and the foreign ministers from the ten ASEAN countries. "China is willing to give priority to expanding the scale of domestic currency swaps with ASEAN countries," Wang said in his remarks to the conference, calling for a "full force" push in the recovery of the regional economy from the COVID-19 pandemic. Countries often sign currency swap agreements to gain access to each other's currency for bilateral trade without the need to purchase it on the foreign exchange market, where the US dollar wields dominant influence. Such deals are also considered a move to cut reliance on the US dollar in trade. The ASEAN foreign ministers said that ASEAN was willing to continue to deepen cooperation with China over free trade, sustainable development, digital economy, and innovation, according to a Chinese Foreign Ministry statement. In the first eight months of 2020, ASEAN has emerged as China's biggest trading partner, with bilateral trade volume reaching 2.93 trillion yuan ($428.8 billion), up 7 percent year-on-year, and surpassing that of trade between China and the EU, Chinese customs data showed earlier this week. 

BRL

Brazilian inflation in August hit its highest level in four years for that month, figures showed on Wednesday, driven by rising fuel and food costs, although it slowed from the previous month and annual inflation remained well below the central bank’s goal. While some prices like food are rising in the short term due to specific factors like supply constraints or overseas demand, the deepest recession on record and huge labor market slack are keeping a lid on broader price pressures. This is likely to keep interest rates at record-low levels well into next year at least, economists say. “With the economic recovery likely to lose momentum from here on, core inflation should remain subdued,” said William Jackson, chief emerging markets economist at Capital Economics. “Against this backdrop, Copom (the central bank’s rate-setting committee) won’t be in any rush to raise interest rates. We expect the Selic rate to remain at its current record low of 2.00% into 2022,” he said. The IPCA consumer price index rose 0.24% in the month, government statistics agency IBGE said, the highest for any August since 2016 and almost exactly in line with the 0.23% that economists in a Reuters poll had expected. Prices rose 2.44% in the 12 months through August, also in line with the median forecast of 2.42% in the Reuters poll. That is still significantly below the central bank’s official 2020 goal of 4.00%, and below the 2.5% floor of the target range.