The USD edged down 0.29% against a basket of major currencies on Thursday, pinning near a two-and-a-half-year low, the move hasn’t changed the broader picture. Yesterday, the U.S. reported that Initial Jobless Claims jumped to 853,000 while analysts expected that they would total just 725,000. Meanwhile, there are no signs of pricing pressure in the U.S. as the Inflation Rate increased by 1.1% year-over-year in November, and while the Core Inflation Rate grew by 1.6%. Elsewhere, the U.S. plans to impose sanctions on Turkey over its purchase of S-400 missiles which should draw some attention. Today’s data highlight comes from December’s preliminary consumer confidence gauge from the University of Michigan.
The euro rose 0.46% against the greenback, keeping within the range of the previous week’s two-and-a-half-year high, after the European Central Bank (ECB) deployed another round of monetary stimulus totaling €500 billion during its policy meeting on Thursday, while the bloc continues to fight a second wave of Covid-19 infections. The ECB focused more on the duration of support, ratifying that it will continue its ongoing bond-purchase stimulus and will extend its support program until at least March 2022 from the current earliest end date of mid-2021. On the other hand, ECB President Christine Lagarde said that the euro’s exchange rate had not been targeted during the central bank’s policy meeting. However, she also commented, “But clearly [the] exchange rate, and in particular the appreciation of the euro, plays an important role and exercises downward pressure on prices, so we monitor it, we will continue to monitor it very carefully going forward.”
The British pound slid 0.77% against the USD during the previous session after U.K. Prime Minister Boris Johnson warned on Thursday there was a strong possibility that the U.K. and the European Union would fail to reach a deal. In addition, the Sterling took a hit after news that London may move into the toughest tier of Covid-19 restrictions, which sent the pound tumbling the most during intraday trading in two months against the USD, before trimming the decline. The day ahead, market participants will of course remain attuned to developments in the post-Brexit trade, which has a “supposed” deadline for Sunday for negotiators to take a final stab at striking a deal.
The JPY was flat against the greenback on Thursday with investors waiting for further Brexit and U.S stimulus developments. For today, optimism after additional stimulus from the European Central Bank and a vaccine rollout should boost equity markets undermining the safe-haven Japanese yen. Looking ahead to next week, there is a steady stream of economic data set for release covering trade, industry, and consumer prices. The Bank of Japan also meets to set its latest monetary policy decision on Friday (18).
Yesterday, the Loonie showed modest gains (0.60%) against the USD, reaching its strongest level since April/18 amid a choppy trading session. Although Deputy Governor Paul Beaudry’s speech didn’t provide further news, he ratified and explained the Bank’s quantitative easing program and its role in the economic recovery, as well as discussed, the Bank’s decision yesterday to leave the policy rate unchanged at 0.25%. The West Taxes Intermediate (WTI) oil has recently managed to get above the $47 level and provided material support to commodity-related Loonie.
The Mexican peso took a hit from a controversial bill that would make the Bank of Mexico (Banxico) buy up cash that commercial banks cannot return to the financial system. Yesterday, Banxico hit back against a draft law moving through Congress, saying the legislation sold as a boost for migrants jeopardized its independence and could force it to handle the proceeds of drug cartels. The MXN retracted 0.70% against the greenback to a one-week low. Investors are keeping a close eye on the Industrial Production report for October, which will be released later today.
The Chinese yuan was softer against the USD, closing 0.04% down on Thursday. Traders and investors are waiting for the outcome of Brexit talks, as well as assessing the geopolitical uncertainty between the U.S and China after the administration of outgoing President Donald Trump seeks to cement hardline policies against Beijing. Yesterday, the U.S. Federal Communications Commission said it had begun the process of revoking China Telecom's authorization to operate in the United States. Turning to data, the Foreign Direct Investment report is expected later today.
The Brazilian real strengthened as much as 2.81% against the USD, touching its strongest value since mid-June while Brazilian shares jumped to their highest level since February on Thursday. The BRL continued to positively react to the central bank's rate-setting committee (Copom) which kept its key interest rate at a record low 2% and said conditions for forward guidance still hold, but for the first time, outlined a scenario where that guidance could be withdrawn. The BRL also found support from retail sales data, which in October grew 8.3% year on year, the best performance for the month since 2012 and the sixth consecutive monthly increase. The rise in retail sales in October reflects the recovery of the Brazilian economy, impacted by the novel Covid-19 pandemic, which caused a strong contraction in March and April of this year.