The U.S dollar fell 0.07% against a broad basket of major currencies on Wednesday while stocks gained as traders weighed up what the new administration means for markets. In the first days of Biden’s presidential activities, he is finalizing a dozen executive orders to reverse some of Trump’s policies, including to return to be a member of the World Health Organization and to join the Paris Agreement. Another important decision that is expected is that he will call off the construction of the border wall between Mexico and the United States. Later today, the U.S macro data might influence the USD price dynamics, which includes the usual Initial Weekly Jobless Claims and housing market data.
The single currency tumbled 0.11% against the USD after the Eurozone Consumer Price Index reported that the consumer prices fell 0.3% year-on-year in December. However, the pullback also could be attributed to some repositioning trade ahead of the European Central Bank (ECB) meeting which happens today. The ECB’s members meet today, but no interest rate change is expected and the economic outlook could see downside risk as it is still so dependent on the virus development.
The Pound edged 0.19% up against the greenback on Wednesday, holding on to its highest level since May 2018. The main factor providing support to the GBP may be associated with the success of the Covid-19 vaccination program in the U.K, where the rate of inoculations exceeds that of other European nations, with 7.59 doses administered for every 100 people. As long as the UK outpaces its peers, a bullish position is likely to maintain. On the economic front, a better-than-expected U.K inflation also contributed to keeping the Sterling steady. The Office for National Statistics (ONS) released the Consumer Prices Index (CPI) data for December 2020, which stated that the 12-month inflation rate rose to 0.6% from a value of 0.3% during the previous month.
The Japanese yen rose 0.35% against the USD on Wednesday, albeit the Bank of Japan (BoJ) slightly lowered its estimate for the nation's growth for fiscal 2020 as the resurgent Covid-19 pandemic and the declaration of a state of emergency have clouded the outlook for economic recovery. On the other hand, the prospect for 2021 assumes that the economy will be helped by government stimulus and recovery in Japanese exports even though the U.S and other major trading partners are still struggling to curb Covid-19 cases. The BoJ also kept its interest rate at -0.1% while guiding long-term interest rates to around 0%. Today, inflation figures are widely expected and should have an impact on the JPY’s move.
The Canadian dollar printed substantial gains (0.78%) against its U.S counterpart on Wednesday after Bank of Canada Governor Macklem ruled out a so-called micro rate cut (<0.25% while keeping the policy rate above zero). The central bank also upgraded its forecasts and guided that “the arrival of effective vaccines combined with further fiscal and monetary policy support has boosted the medium-term outlook for growth”. Today’s focus will be on the ADP Nonfarm Employment Change data.
The Mexican peso moved higher +0.3% to a new 10-month high against the greenback with optimistic markets due to the change of powers in the U.S presidency. During the first day of Biden’s activities and among his first executive orders, U.S President Joe Biden has issued he will be ending emergency funds to build a wall on the Mexican border. He has also halted construction to review contracts and how wall money might be redirected. Moreover, it is expected the Biden may take steps to settle the immigration status of Mexicans working in the United States.
The Chinese yuan reported gains of 0.2% against the U.S dollar on Wednesday for the second trading session in a row as the greenback weakened abroad and tighter cash conditions in China's interbank money market also lent support. Looking ahead, a new outbreak of the virus in China could impact plans to celebrate the Lunar New Year and cap further CNY positive moves. China reported 144 cases on Wednesday, up from 103 a day earlier, despite measures to contain the latest outbreak in the northeastern part of the country, with Heilongjiang Province recording its biggest daily rise in new patients to date.
Unsurprisingly, Brazil’s Central Bank (BCB) held its benchmark interest rate at 2% per year for the fourth meeting in a row on Wednesday. However, the BCB removed its “forward guidance” to keep borrowing costs low for a long time to come, this is as inflation is expected to rise towards the target over the next two years. On that note, the Brazilian real strengthened 1.23% against the U.S dollar amid a choppy trading session. The international headlines with Joe Biden’s inauguration as the 46th President of the United States also led the USD to retreat. In the meantime, market players have been closely monitoring the domestic election campaign in the House and Senate to calculate risks of further pressure for more spending, which may also come from within the government itself.