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The dollar index strengthens

USD

Yesterday, the Dollar Index closed its last trading session with gains of (+0.59%). In contrast, Wall Street’s main indexes hit their lowest in almost seven weeks. There are fresh concerns about Covid-19-driven lockdowns, and there is an impasse in Congress over more fiscal stimulus and the recent financial document leaks from the US Financial Crimes Investigation Network.

EUR

The EUR closed with modest gains of (0.12%) against the greenback, amid heightened currency volatility, reflecting a moderation in global risk aversion yesterday. In Europe, the increase in the number of Covid-19 cases has raised fears that new measures to restrict economic activity may be adopted to try to contain the pandemic's progress.

Unsurprisingly, Covid-19 concerns will likely remain the primary driver of market sentiment over the coming day, and potentially longer.

In the stock market, it is likely to see new losses from European travel and leisure stocks, as well as bank stocks. Yesterday, travel companies ended the day more than 5% lower.

GBP

In the UK, banks have been accused of money laundering after a leaked cache of thousands of documents revealed some of the world’s largest financial firms have facilitated criminals and fraudsters in processing dirty cash.

New pandemic measures in the region set out declines in airline and tourism companies in both European and U.S. markets, spurring concerns about further restrictions. Also, the Pound was hit by comments from the government’s chief medical officer, Chris Whitty, who said that if the current trend in rising cases continues, then next month the UK could see about 50,000 new Covid-19 cases per day. The GBP/USD pair fell on Monday and it is approaching its September low.

The Telegraph newspaper reported that the Prime Minister will make a speech today outlining new lockdown restrictions to fight the second wave of Covid-19. It is likely that PM Boris Johnson will encourage Britons to go back to working from home and announce other restrictions. 

Also, today, the September CBI industrial trends survey will be published. It is expected that we will see a slight manufacturing recovery.

JPY

The dollar lost further ground in Tokyo on Tuesday, with a risk-off mood enhanced by caution over sell-offs in the European and U.S. stock markets.

The upbeat statement from Chinese President Xi Jinping and expectations of further stimulus for Japan’s economy under the presidency of Yoshihide Suga favor the market optimism.  

Against the safe-haven JPY, the greenback eased 0.2% to drift closer to a recent three-and-a-half-month trough. The outlook for JPY is still optimistic, based on the real rate differentials that drive capital flows and, therefore, the FX market in Japan has the highest and positive real yields. This makes the JPY very attractive, especially against the GBP and USD.

CAD

The Canadian dollar is still under pressure but has managed to remain confined in a range near its 6-week high.  A steep fall in crude oil prices undermined the commodity-linked currency and further contributed to the USD/CAD pair's downward momentum on the first day of a new trading week.

In response to the new Covid-19 fears, Ontario reduced the size of social gatherings to 10 people indoors. The Premier of Ontario, Doug Ford, warned he would take strict action on outdoor social gatherings that exceed 25 people. However, there are no new COVID-19 transmission concerns on public transportation, which means buses and subways continue to operate as normal.

Canadian new home prices recorded their sharpest one-month gain in three years with higher demand and rising costs for building materials. On Monday, Statistics Canada said prices rose by 0.5% in August which is the biggest increase since May 2017.

Market participants now look forward to Canada's Throne Speech on Wednesday.

MXN

The Mexican peso lost 1.0% in the last trading session, reaching its weakest level in almost four weeks and its third consecutive day of losses. While in the stock market, Mexico’s COLCAP index fell 0.97%.

Crude oil prices weakened 4% and natural-gas prices fell over 10% after new rumors that Libyan crude production would soon return to the market, increasing the production even as global demand remains weak.

Investors will keep their attention on the oil market, as well as the central bank meeting on Thursday, where a new cut of 25bps in policy overnight rate is widely anticipated.

CNY

The CNY rose 0.24% today, with the Chinese yuan continuing to strengthen. The sequential gains came despite the People’s Bank of China (PBOC) fixing its reference rates at 6.7872 early today. That’s about 60 bps weaker than the average estimate in a recent Bloomberg survey. There is concern among market participants with this new reference rate. Many feel the PBOC will be looking to drive the CNY weaker, due to the recent rally in the currency culminating in the CNY being up 4.1% since the end of June.

Also, today, the state-backed vaccine maker China National Biotec Group (CNBG) is hopeful that two of its novel Covid-19 vaccine candidates will receive conditional regulatory approval for general public use within the year. CNBG is testing its two inactivated vaccines in nearly 10 countries outside China, including Brazil and the United Arab Emirates. According to CNBG vice-president Zhang Yutao, the whole population could get shots in two or three years.

BRL

The week began with a widespread movement of global risk aversion, caused by new cases of Covid-19 and scandal in the American banking sector. Investors also assessed the data from Central Bank of Brazil Focus-Market Readout, which points to an improvement in estimates for this year's GDP - the forecast has fallen to 5.05%. The Brazilian real fell 0.38% on the back of this news.

Petrobras, which is a Brazil’s state-controlled oil company, was among the biggest losses (-3.46%) on Brazil's Bovespa index after a second justice in Brazil's Supreme Court voted against allowing the state company to sell eight refineries.

The external scenario may continue to be the major market-driver throughout Tuesday’s session. 

Quick Insights

USD: Wall Street’s main indexes hit their lowest in almost seven weeks

USD: Wall Street’s main indexes hit their lowest in almost seven weeks

EUR: New measures to restrict economic activity may be adopted

EUR: New measures to restrict economic activity may be adopted

GBP: UK banks have been accused of money laundering

GBP: UK banks have been accused of money laundering

JPY: The outlook for JPY is still optimistic

JPY: The outlook for JPY is still optimistic

CAD: The Canadian dollar is still under pressure

CAD: The Canadian dollar is still under pressure

MXN: Investors will keep their attention on the oil market

MXN: Investors will keep their attention on the oil market

CNY: Chinese yuan continuing to strengthen

CNY: Chinese yuan continuing to strengthen

BRL: The external scenario may continue to be the major market-driver

BRL: The external scenario may continue to be the major market-driver

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