Daily Market Pulse

Market expects synchronized global economic recovery next year

4 minute read


The U.S. Dollar Index that tracks the greenback against a basket of other currencies tumbled 0.38% on Tuesday, reaching its lowest level in more than two years. Even though the size of the stimulus checks remains in question, some analysts warned that the USD is set to continue depreciating in the upcoming year as they expect President-elect Joe Biden to roll out further stimulus measures. Also, another factor weighing on the dollar sentiment is the market’s expectations that the Federal Reserve will maintain low-interest rates for a long time.


The dollar hit a more than two-year low against the euro on Tuesday as optimism that U.S. lawmakers would enlarge stimulus payments to individuals boosted risk sentiment. The common-currency jumped as much as 0.27% and touched its highest level since April 2018. The EUR has also been buoyed by the post-Brexit trade deal reached last week, albeit the agreement is not comprehensive, it avoided a damaging no-deal outcome.


The cable rose 0.32% on Tuesday as market participants assessed the possibility of another U.S. stimulus package, which has lifted the market’s sentiment. Some analysts believe that the GBP is at historically low-price levels and therefore likely to continue to appreciate, albeit Covid-19 lockdowns and the relationship between the U.K and the European Union could generate some stress.   


The JPY gained 0.23% on Tuesday and erased its losses from the day before against the greenback. Expectations for a synchronized global economic recovery in the next year reinforces the upbeat market mood. This might undermine demand for the safe-haven Japanese yen and help cap the JPY’s gains amid thin trading volumes on the back of the year-end holiday.


The Canadian Dollar gained ground (+0.22%) against the greenback on Tuesday on the back of an oil price rally. Rising crude oil prices helped the commodity-linked CAD gather strength against its main peers as investors remain optimistic about a steady recovery in fuel demand after the renewed U.S aid package. There will not be any significant macroeconomic data featured in the Canadian economic docket, therefore, the risk perception and oil prices’ movements are likely to continue to impact the CAD’s performance.


Hopes of improving oil demand have helped the MXN to close up 0.55% against the U.S dollar on Tuesday. Both Brent and West Texas Intermediate were up 0.45% and 0.8%, respectively as hopes of a larger round of stimulus checks signed off by President Donald Trump and the House on Monday would spur fuel demand. In the absence of domestic news, the MXN should remain supported by the global risk-on sentiment.


The USD/CNY tumbled 0.07% on Tuesday amid a low liquidity session as many investors take their year-end holidays. Earlier today, the People’s Bank of China (PBoC) reiterated on Tuesday that “China will implement a prudent monetary policy that is flexible, precise, reasonable and moderate, and keep it consistent, stable and sustainable”. Traders and investors will digest the PBoC remark, but the market reaction should be limited as market moves are expected to be subdued.


The BRL closed up 0.7% against the greenback on Tuesday, amid the greater appetite for risk abroad and low liquidity at the end of the year. In December, the BRL appreciated by 2.2%. In the year, however, it has lost around 30% of its value. Domestically, market participants assessed the confidence index data for the December services sector, released by the Fundação Getulio Vargas (FGV) - which showed a slight increase in December. FGV also reported that the IGP-M, known as rent inflation, closed 2020 at 23.14%, the highest rate since 2002.


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