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U.S Dollar vulnerability and Irish border row

USD

The greenback struggled to keep in the positive territory (+0.05%) against a basket of major currencies on Thursday. The U.S dollar’s further gains were capped after initial jobless claims fell to 793,000 for the week ended Feb 6, compared to 812,000 a week before, but above the consensus, 760,000. The slow pace of jobless claims justifies the Federal Reserve’s dovish stance, which could provide more vulnerability to the USD in the short term. Looking ahead, January consumer confidence figures are due from the University of Michigan later today. The consumer’s confidence has a close inverse correlation with Covid-19 infection numbers, hence it should improve compared to last month, in light of cases falling significantly of late.

EUR

The single currency was able to print gains (+0.1%) against the U.S dollar on Thursday after slightly weaker-than-expected U.S jobless claims data weighed down the U.S dollar. A European Commission forecasted that the eurozone economy will rebound less than earlier expected in 2021 had a muted impact on the EUR. Looking ahead, there are no relevant data releases from the Eurozone, thus the EUR’s movement will continue to be driven by further Covid-19 and Brexit developments and global market sentiment.

GBP

The Sterling slid 0.11% against the U.S dollar, breaking a five-day sequence of gains after investors were hesitant to keep buying the GBP as uncertainty rose over the Covid-19 pandemic and post-Brexit trade. The U.K. and the European Union remain in a deadlock over how to implement the Brexit deal in Northern Ireland, despite more than three hours of talks between top officials on Thursday. Apart from renewed Brexit issues, market participants will digest the recently published December GDP, which rose by 1.2% month-to-month in December, slightly above the consensus, 1.0%. However, the U.K. economy remained the laggard in the G7 in Q4, with GDP still some 7.8% below its pre-pandemic peak. The industrial production and trade balance figures will also drive interest.

JPY

Japanese markets were closed yesterday due to a national holiday. However, Japanese traders are back to work today. Earlier today, the USD/JPY pair has seen some positive traction as the risk-on mood undermines the safe-haven JPY. The global risk sentiment remained well supported by optimism over the progress in the rollout of Covid-19 vaccines. Looking ahead, low liquidity and light volume are likely to prevail as most Asian countries are still out due to the long-week holiday. In addition, the U.S bond yields and the USD price dynamics must produce a great influence on the JPY.

CAD

The Loonie was flat against its U.S. counterpart on Thursday, pulling back from its strongest level in nearly three weeks as a winning streak for oil ended and the U.S dollar broadly steadied. The West Texas Intermediate dropped for the first time this month after OPEC, as well as the International Energy Agency, warned about demand recovery being hindered by renewed coronavirus-related lockdowns. Today, the December Wholesale sales figures will be posted, but it is expected to have a muted impact. Apparently, USD/CAD traders are not interested in domestic economic fundamentals. Instead, it is the U.S. and global outlook that matters.

MXN

Mexico’s Central Bank voted yesterday - in a surprisingly unanimous - decision to cut the reference rate by 25bp to 4.00%. Steady core inflation in recent months, the worsening of the pandemic, a stuttering economic recovery, and the absence of decent fiscal support have forced the bank to act. On that note, Mexico's peso was up 0.3% against the greenback. Strength in oil prices also supported the MXN, albeit, during the previous trading session, West Texas Intermediate crude oil tumbled almost 0.8% of its value after rallying for several consecutive sessions. Oil prices had been strengthening due to a combination of rising hopes that the global economy, as well as oil demand, could soon recover on the back of stimulus measures and vaccine rollouts worldwide.

CNY

Chinese financial markets are closed due to New Year celebrations.

BRL

The Brazilian real weakened 0.31% against the greenback on Thursday after the National Geographic Statistics Bureau (IBGE) reported that Brazil’s service industry fell 7.8% in 2020 compared with 2019, setting a record that the country began in 2012. Also, yesterday, Brazil's central bank president Roberto Campos Neto said that Brazil’s Central Bank will not raise interest rates at the next meeting in March and warned that the economic recovery is losing steam. Looking ahead, the central bank's IBC-Br economic activity index for December, a leading indicator of GDP, will be published later today.

Quick Insights

USD: The slow pace of jobless claims justifies the Federal Reserve’s dovish stance

USD: The slow pace of jobless claims justifies the Federal Reserve’s dovish stance

EUR: The EUR’s movement will continue to be driven by further Covid-19 and Brexit developments

EUR: The EUR’s movement will continue to be driven by further Covid-19 and Brexit developments

GBP: The U.K. and the European Union remain locked in a deadlock over how to implement the Brexit deal in Northern Ireland

GBP: The U.K. and the European Union remain locked in a deadlock over how to implement the Brexit deal in Northern Ireland

JPY: The U.S bond yields and the USD price dynamics must produce a great influence on the JPY

JPY: The U.S bond yields and the USD price dynamics must produce a great influence on the JPY

CAD: A winning streak for oil ended

CAD: A winning streak for oil ended

MXN: Mexico’s Central Bank cut the reference rate by 25bp to 4.00%

MXN: Mexico’s Central Bank cut the reference rate by 25bp to 4.00%

CNY: Chinese financial markets are closed due to New Year celebrations

CNY: Chinese financial markets are closed due to New Year celebrations

BRL: Brazil’s service industry fell 7.8% in 2020

BRL: Brazil’s service industry fell 7.8% in 2020

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