USD

Yesterday, Chicago Fed Chairman Charles Evans said that the U.S. economy is at risk of a slower and longer recovery, and even a recession if Congress doesn’t approve a financial aid package to support those who lost their jobs due to the Covid-19 pandemic. Moreover, Evans mentioned the prospect of rising interest rates, which is in stark contrast to the previous narrative from Fed policymakers of low rates. The market understood Evan’s comments as extremely hawkish, meaning the central bank wants to protect the country's economy against excessive inflation. The Dollar Index rose to its highest level since 24th July. At the same time, Fed Chair Jerome Powell spoke to U.S legislators at a congressional panel that while the U.S economy has shown "marked improvement" since the Covid-19 pandemic drove it into recession, the future remains uncertain and the Fed will do more if needed. Today, traders will keep a close eye on the Markit PMI flash report for September and with Fed Chair Powell once again appearing on Capitol Hill. 

EUR

A few weeks ago, the market was extremely bullish betting in favor of a strong EUR against the USD, raising concerns for the European Central Bank. However, the further deterioration of the epidemiological situation in the euro-area, along with Fed’s hawkish tone, might exhaust the recent EUR uptrend. Today, market participants pay attention to the September Eurozone PMI (Purchasing Managers Index) report. Eurozone data is expected to show that the bloc’s economy continued to expand at a reasonable pace in September. However, if Manufacturing and Service PMIs show a lag, this could add more pressure to the EUR. Later today, Spain releases second-quarter gross domestic product figures. Moreover, the country is likely dealing with the much-feared second wave and has started acting to curb it, further straining to the economy.

GBP

Speaking at a British Chambers of Commerce event, Bank of England (BoE) governor Andrew Bailey said the central bank needed to have the ability to set negative interest rates, but that doesn’t mean they will need to use them. Despite the BoE governor’s comment giving some support to GBP leading the currency to recover some lost ground in the mid-trading session, the strong rally in the greenback drove GBP to reach its one month low. Further pressure came after the UK Prime Minister Boris Johnson announced new restrictions to combat the second wave of Covid-19 in Great Britain, which could last for six months if the pandemic situation does not improve. It comes as the UK recorded 4,926 new lab-tested cases of Covid-19, the highest daily spike in infections since 7th May. Finally, the market is now boosting its odds of a no-deal Brexit as the UK’s negotiation deadline of 15th October looms. Which should bring more losses to GBP.

 

JPY

This week, the JPY has traded higher for the third session in a row amid growing uncertainty of a second wave of the Covid-19 pandemic and fears about a possible U.S stimulus continuing to support the USD. The JPY has been among the best performing G10 FX (major currencies) in September as global risk sentiment in the financial markets drove safe-haven demand. Early this morning, FX market players paid special attention to the speech from Bank of Japan’s Governor Kuroda at an online event to business leaders. Mr. Kuroda ratified the central bank’s commitment to ramping up monetary stimulus, as the Covid-19 pandemic keeps the economic prospects highly uncertain. Later today, we will see BOJ policy meeting minutes and this will likely have a similar tone to the Governor’s speech. From an economic data standpoint, Japan’s factory activity extended declines in September. The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) was largely unchanged at 47.3 in September compared with a final 47.2 in the previous month, signaling a further deterioration in the health of the industrial sector.

CAD

The rally seen in the USD drove CAD to one month low. Raising safe-haven appeal for the USD, after Chicago Fed President Charles Evans suggested the Federal Reserve's plan allows a hike, before inflation averages 2%. Today, investors and traders will focus on Canada's Throne Speech, where Canadian Prime Minister Justin Trudeau will unveil what he says is a far-reaching plan to help the economy recover from the Covid-19 pandemic while ensuring efforts to fight the outbreak do not falter. It is expected that the Throne Speech will focus on: measures to protect Canadians’ health and prevent another lockdown; economic support through the pandemic; and eventual rebuilding measures.

MXN

The MXN depreciated (-2%) against the USD on Tuesday, on the back of news relating to Covid-19 restrictions applied in several countries. This slide also came in response to Chicago Federal Reserve President Charles Evans saying that interest rates may be raised before inflation hits 2%, which underpinned the USD. The Mexican peso was down for a third trading session in a row and is set for its sharpest depreciation in eleven weeks. Today, market participants are still digesting comments from the Federal Reserve Chair Jerome Powell and Charles Evans and look ahead to Retail Sales data. Also, investors remain anxious about Mexico's central bank interest rate decision on Thursday, where the central bank may opt to a new cut of 25bps in its benchmark rate. 

CNY

According to China Central Bank and state agencies, the country will escalate support for key firms engaged in supply chains in advanced manufacturing, services and trade sectors, amid a serious breakdown in U.S. relations. The CNY is gradually influencing weekly currency changes in GBP and commodity-linked pairs such as CAD and AUD. Correlation between the offshore yuan and major currencies has strengthened since the beginning of the pandemic under the perception that China is rebounding and driving the global recovery. China’s demand for soft and mineral commodities, as well as high-tech products (i.e. semiconductors), is dictating the pace of growth of many economies.

BRL

The Brazilian currency traded lower (-1.29%) Tuesday. Concerns about new Covid-19 cases around the world continue to weigh on global markets. The minutes of the last meeting of the Central Bank's Monetary Policy Committee (Copom) were released earlier yesterday when the economy's basic interest rate (SELIC) was kept stable at 2% per year. In the document, the Central Bank points out that consumer inflation should rise in the short term, while "recent economic data" suggest a "partial recovery in economic activity". After four months of contraction, the agroindustry sector grew again in the annual comparison, according to PIMAgro FGV (Getulio Vargas Foundation, in English). In comparison with June/2020 (already considering the seasonal adjustments), the Agroindustry registered a growth of 4.4%, this being the third consecutive month of expansion. The expansion of agro-industrial production was pushed by all segments, such as forest manufacturing items, beverages, tobacco, latex, etc. Nonetheless, the economic outlook for BRL in the medium-term may be pretty grim, with a negative real rate, along with a worsening fiscal and debt outlook.