The dollar index against a basket of major currencies was unchanged on Monday, ignoring the latest interim results of Moderna’s Covid-19 vaccine trial. Nonetheless, U.S. Treasury yields rose on Monday with the 10-year yield curve steepening over 0.9% in the wake of vaccine developments. This sort of reaction illustrates that there is a rapidly worsening Covid-19 situation in the near term, but there is a cause for optimism in the long-term. Today, investors are looking ahead to the release of U.S. retail sales and industrial production, in which both will gauge the health of the economic recovery.
In line with the USD’s performance, the EUR also hardly reacted to recent vaccine developments. The common currency edged higher 0.07% against the greenback on Monday, but gains are capped as new restrictions keep on coming. German Chancellor Angela Merkel urged people to limit public and private gatherings. In France and Spain, the intensive care unit remains under pressure. Sweden, who previously avoided a Covid-19 lockdown earlier this year, resorted to its toughest restrictions yet after an influx of people filling intensive care beds. Investors are waiting for the eurozone construction output to be reported later in the day, which is expected to print another monthly decline.
The British pound edged lower 0.22% after mixed headlines out there about Brexit, which caused a significant increase in volatility. Initially, the media reported that Chief UK Negotiator David Frost said an agreement could come early next week. Then, an EU official said that it might be too late to achieve a trade deal, while UK Prime Minister Boris Johnson’s office said in a statement that they are confident that the UK will prosper even if they fail to reach a trade deal with the EU. Today, Bank of England Governor Andrew Bailey is set to speak at the National Conference, however, Brexit uncertainties remain as a major market-mover.
Surprisingly, the JPY kept firm (+0.11%) against the USD on Monday amid increased global risk appetite. The major theme was the positive result of the Covid-19 vaccine candidate test from drugmaker Moderna, whose Phase 3 study met statistical criteria with a vaccine efficacy of 94.5%. However, it seems that the JPY also ignored the latest interim results. Thus, JPY price action looks set to continue to be determined by global risk dynamics and Japanese exports and imports data, which are scheduled for later today.
The Loonie, unlike some of its major peers, received another Covid-19 vaccine news boost on Monday, along with solid gains in crude oil prices (West Texas Intermediate - WTI +2.8%). Adding to the upbeat mood, Canada’s manufacturing sales increased by 1.5% in September from August on higher sales in the wood industry, as well as the chemical industry, according to official statistics data. Today, market participants will keep a close eye on the Wholesale sales report, as well as the Bank of Canada's perspective with Governor Tiff Macklem speaking at the Public Policy Panel.
The Mexican peso rose 0.5% against the greenback on Monday, with the currency further supported by strength in oil prices. Stock and bond local markets were shut for a national holiday. Oil prices edged higher on Monday on expectations that OPEC and its allies will extend oil production cuts for at least three months, while sentiment was reinforced by news of another promising Covid-19 vaccine. Today, in the absence of economic data, the MXN should be mostly driven by external factors.
China's yuan firmed on Monday, rising 0.32% and extending its blistering rally against the USD on the back of strong economic data. Earlier this morning, China’s central bank, following the stronger offshore yuan, lifted its official yuan midpoint to the highest in nearly 29 months. The U.S. Chamber of Commerce said on Monday it was concerned the U.S was being left behind after 15 Asia-Pacific economies on Sunday formed the world’s largest free-trade bloc, cementing China’s dominant role in regional trade. The signing of the Regional Comprehensive Economic Partnership (RCEP) at a regional summit in Vietnam, is a further blow to the group pushed by former U.S president Barack Obama, which his successor President Donald Trump exited from in 2017.
The Brazilian real appreciated nearly 0.8% against the USD on Monday after positive results for a second Covid-19 vaccine lifted risk appetite. The BRL also found support after China reported that its industrial production increased faster than expected in October and retail sales accelerated too, as the Chinese economy recovers from the slump caused by the Covid-19 pandemic. The Brazilian stock market was also catalyzed by the optimism of the global market, with the Brazilian share Index, Ibovespa, soaring 1.5% to a more than eight-month high. The BRL should continue to gain attraction as the increase in risk appetite globally reduces the demand for the USD as a safe-haven asset.