Daily Market Pulse

Monetary policy will remain loose in the near term

5 minute read


The U.S dollar printed losses of 0.13% against major peers on Thursday, damaged by both Chair Powell and Vice Chair Clarida after having indicated this week that monetary policy will remain loose in the near term, and the rumor of slowing down or “tapering” the bond purchases was premature. The softer jobless claims data might have also contributed to the greenback’s weakness. Meanwhile, Biden outlined a proposal that includes $415 billion aimed at the Covid-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic. In the spotlight today, December’s US retail sales report is set to show a rather disappointing stagnation in sales during the Christmas season. 


The single currency was unchanged on Thursday as investors waited for a speech by Jerome Powell, who delivered a dovish statement.  Yet, as expected and priced in previously, the German GDP was 5.0% lower in 2020 than in the previous year, official data reported. Today, market players will wait for the Eurozone Trade Balance numbers for November amid growing evidence that the pandemic is sweeping across the region once again. France and Spain will extend the curfew measures in place across the country as it works to stem the tide of Covid-19 infections and raise the prospect of a new total lockdown.


The Cable had a relatively quiet Thursday’s session, trapped at around 90 pips between maximum and minimum. The pound rose 0.4% against the USD contributing to the ascending channel. In the lack of new fundamentals, market players are still pricing in the recent Governor of the Bank of England Andrew Bailey’s comments about the complexity of negative interest rates. Today, traders will react to the GDP numbers released this morning.  The Office of National Statistics (ONS) showed that U.K GDP fell by 2.6% in November 2020 as government restrictions reduced economic activity. The number is also in line with Mr. Bailey’s remarks, who warned that the nation was facing its “darkest hour” due to the pandemic crisis.


The Japanese yen stumbled lower 0.06% against the USD on Thursday as rising Covid-19 infections in the Asian region reinforced investor concerns over the prospects for a global economic recovery. Looking ahead, investors are already eyeing economic data from next week. According to a Reuters poll, core consumer inflation is expected to show the fastest pace of decline in over a decade, further adding to deflation fears as a renewed state of emergency in Tokyo is likely to cool consumer spending. On the other hand, exports are expected to recover thanks to a pick-up in overseas economies.  


The Loonie printed solid gains (+0.46%) against the greenback for the third trading session in a row, on Thursday. The CAD found support after U.S Federal Reserve Chair Jerome Powell said "now is not the time" to be talking about exiting ultra-easy monetary policy and pledged the central bank will give plenty of notice before scaling back its bond-buying program. Chair Powell’s comments cooling down the recent reflationary optimism. Looking ahead, amid a lack of fresh fundamental catalysts, CAD traders will continue to digest the recent President-elect Joe Biden’s relief package plan, where he will ask for USD 1.9 trillion for stimulus checks and other benefits. Overall, the USD/CAD continues to move lower with a bearish trend channel.


The Mexican peso is back on track, after closing up 0.67% against the USD, eyeing its first weekly gain of the year. The market’s sentiment was lifted with investors and traders focusing on U.S. President-elect Joe Biden's fiscal stimulus plan as hopes grew for a bigger stimulus package. Domestically, similar to most emerging markets, Mexico saw last year a total capital outflow of USD 12.58bn from the government bond market, amid a wave of global risk aversion during the Covid-19 scourge. However, Mexico could be well-positioned in 2021 to stage a comeback thanks, in part, to its appealing interest rate differential. At 4.25%, Mexico currently has the third-highest central bank benchmark interest rate among the Group of 20 nations, with 10-year bond trading at 5.40%, above the debt of countries with a similar or lower credit rating.


Yesterday, the Chinese yuan slid 0.09% against the greenback, guided lower by a weaker central bank fixing. Earlier this morning, China’s central bank rolled over maturing medium-term loans while keeping the interest rate unchanged for a ninth straight month. Amid a resurgence in Covid-19 cases in China, authorities have signaled that they want to avoid sudden policy shifts and keep economic growth at a moderate pace. Elsewhere, concerning the China-US tensions, Trump’s administration has dismissed plans to blacklist Chinese tech giants Alibaba, Tencent, and Baidu, providing relief to Beijing’s top. 


The Brazilian real jumped as much as 1.93% against the dollar on Thursday, with investors continuing to digest the inflation figure of 2020, which was the highest level in four years. The current inflation has been seen as an important trigger for Brazil’s Central Bank to put an end in the policy-easing cycle, which could increase the BRL’s yields and, consequently, attract foreign capital.  Also, on the radar for Brazil is a slower-than-expected rollout of Covid-19 vaccines and the dramatic situation in the Brazilian state of Amazonas, where hospitals are running out of oxygen due to a renewed surge in Covid-19 deaths. 


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