Daily Market Pulse

USD hits three-week high

5 minute read


U.S markets were closed for the Martin Luther King Jr national holiday on Monday, which resulted in light trading volumes and thin liquidity across the markets. Today, aside from Covid-19 developments, the focus is on Janet Yellen's confirmation. Yellen is well known for being dovish on monetary policy, which means she supports lower interest rates, however, investors will be keen to uncover more detail on her fiscal stance and what she thinks about the U.S dollar. Meanwhile, in corporate earnings, U.S. banks Goldman Sachs and Bank of America are scheduled. The latest report of positioning data ending 12th January from the Commodity Futures Trading Commission (CFTC) will also drive interest, as it displayed a sharp increase in USD net-shorts, reaching fresh highs.


The Euro closed unchanged against the greenback at the beginning of the week, with most of the market players waiting for the ZEW Survey, which outlines the economic sentiment in the bloc. The ZEW survey will also release its German Economic Sentiment Index and the Current Situation Index later today, reflecting institutional investors’ opinions for the next six months. Meanwhile, market participants will digest the news that European car sales dropped by 24% last year, the biggest annual drop since records began in 1990. The impact of the Covid-19 crisis on the European automobile industry is unprecedented and contributes to weakening the single currency.


The pound was flat against the greenback on Monday amid a light trading volume session. As the U.K speeds up its inoculation campaign, with 6% of its population already vaccinated, the nation becomes one of the front-runners in the vaccination race and paves the way for a stable economic recovery, which also provides support to the Pound. Today, headlines from the U.S will be on the radar, with Treasury Secretary nominee Janet Yellen to call for "big" action at the Senate confirmation hearing. The Bank of England’s Chief Economist Andy Haldane is also set to make remarks today.


The Japanese yen gained some ground at the beginning of the week, ending the day up by 0.1% against the USD. The sour market’s mood with European and Asian indexes closing near their opening levels reflected the latest Covid-19 developments across the world, however, favored some slight gains for the Yen. On the other hand, the JPY had its gains capped after Japanese data released on Monday indicated that Industrial Production contracted 3.9% year-on-year in November, worst-than-expected by analysts. Capacity Utilization was also contracted by 2.9% in the same month. Today, in the absence of macroeconomic data releases, all eyes will be on the remarks from incoming U.S Treasury Secretary Janet Yellen.


On Monday, the Loonie slid 0.18% against the greenback after reports showed that Biden is expected to call off the Keystone XL oil pipeline on his first day in the White House. The Keystone XL is a project which is designed to carry oil nearly 1,900km from the Canadian province of Alberta down to Nebraska.  The CAD also took a hit from the recent economic front, with Canadian housing starts falling 12.2% in December compared with the previous month, with a reduction in urban starts driven by a 15.1% decline in multiple-unit starts, data from the national housing agency showed on Monday. Looking ahead, market players will keep an eye on the November manufacturing sales figures, as well as Yellen’s inaugural speech as the U.S Treasury Secretary.


After trading most of the session in red territory, the Mexican peso was able to reverse the losses to close 0.61% up against the greenback on Monday. In a light week on the data front, market players will closely watch as the U.S swears in Joe Biden as the 46th President. Other factors that should affect the MXN are the monetary decisions of different central banks that will be announced this week, such as the European Central Bank, the Bank of Japan, and Brazil’s Central Bank.


Although China reported a 6.5% increase in GDP in Q4/2020, investors continue to raise risk aversion due to the rise in Covid-19 infections in Europe and China. Against this backdrop, the Chinese yuan tumbled 0.16% against the U.S dollar on Monday. Earlier today, China reported more than 100 new Covid-19 cases for a seventh day in the worst domestic outbreak since March last year. In the meantime, millions of people have been under lockdown as some Chinese cities undergo mass testing for the Covid-19 amid concerns that undetected infections could spread quickly during the Chinese New Year holiday, which is just weeks away.


The Brazilian Real was almost unchanged (-0.05%) against the U.S dollar on Monday as the country finally started to send Covid-19 vaccine doses across its states. The news cheered up the market’s sentiment, albeit it would be crucial to assess the pace of vaccination in essential workers. The BRL also saw important support from the recent economic activity figures. The central bank's IBC-Br economic activity index, a leading indicator of GDP, rose a seasonally-adjusted 0.59% in November for a seventh straight month. Today, investors will watch the new U.S. administration's stance on the greenback as President-elect Joe Biden gears up to take office tomorrow.


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