Daily Market Pulse

$908 billion Covid-19 aid package gaining traction in the U.S Congress

5 minute read


The U.S. Dollar Index that tracks the greenback against a basket of major currencies inched down 0.44% for the third trading session in a row. The market priced in a $908 billion Covid-19 aid package that gained traction in Congress on Thursday, and the fact that the Fed is widely expected to expand its bond-buying program. Therefore, both actions would lead the USD to continue its downward trend, with bond-buying keeping yields anchored and spending increasing appetite for riskier currencies. As to data figures, jobless claims in the country fell 75,000 last week to 712,000, albeit remaining higher. Looking forward, market participants now look at U.S. jobs data, including November’s manufacturing payrolls and non-farm payrolls which are due later in the day. These will provide further clues on the U.S. economic recovery amid a surge of new virus cases.


Apart from the imminent Brexit deal, EU leaders are preparing to deal with the recent threat posed by Poland and Hungary, when both countries vetoed a stimulus fund. In the case of the current scenario remaining immutable, the lack of unanimity will trigger an emergency budget for the bloc. A new plan would cut Hungary and Poland out of the €750bn Covid-19-rescue fund, effectively stripping them of the power to stop the flow of much-needed stimulus to the continent’s battered economies. Reflecting this positioning of the bloc’s leaders and benefited by the dollar’s weakness, the euro rose 0.21% on Thursday. Turning to data, traders and investors will wait for Germany Factory Orders later today.


The GBP inched up 0.67%, gaining territory over the USD on Thursday. A broadly softer greenback provided useful support to the pound, indeed. Although the pound touched its one-year high during the trading session, investors continued to await the outcome of Brexit trade deal talks between the U.K. and the European Union (EU). Thus, Brexit’s final deal will be on the minds of traders throughout the day, waiting for an announcement from London. This means that the GBP could leap significantly higher, or perhaps lower if talks break down.


The Japanese yen recouped losses from previous days after closing 0.55% higher against the USD on Thursday. Rumors that the U.S Federal Reserve will expand its bond-buying program, along with growing bets for more U.S fiscal stimulus worth about $908bn, could be cited as key factors weighing on the USD and capping the USD/JPY pair. Today, in the absence of Japanese data, traders await Nonfarm Payrolls from the US for USD/JPY action ahead.


The Loonie was up 0.45% against the USD on Thursday, printing a new 2020 high, with investors continuing to cheer the latest OPEC+’s decision to gently ease output next year. The deal appeared to satisfy the oil market and most of the cartel’s members, where WTI and Brent crude oil futures rose 0.8% and 2.5%, respectively. Subsequently, Canadian traders were also benefited. Investors will keep a close eye on the U.S. Covid-19 relief plan talks, as well as looking forward to the employment figures due out later today, both of which are eagerly awaited and are expected to drive the USD/CAD pair through today’s trading session.


The MXN inched 0.41% against the USD for the third straight session and reached its nine-month highs on Thursday. The Mexican peso appreciated once again after markets positively reacted to OPEC+’s decision to gently ease output next year. The accord also boosted oil markets, where WTI crude oil futures rose as much as 0.80% while Brent rose 2.5%, reaching their highest level since March. The MXN also rallied on the back of encouraging economic readings from Brazil. Today, investors will keep an eye on the Consumer Confidence report.


China’s impressive economic recovery, confirmed by the latest manufacturing and services PMIs for November, continues to strongly support the Chinese yuan. The USD/CNH pair has declined 7.3% since June, as the CNY is hovering close to its highest level since June 2018. The fundamentals remain steady, with the Chinese government gradually opening their financial market to attract foreign investors and boost demand for yuan, as well as the expectation that President-Elected Joe Biden will lower the temperature of the trade war between the U.S and China, which would be a bullish development for the Chinese currency. However, the latter is uncertain after a recent report said the U.S would not immediately remove the higher tariffs placed on Chinese products.


The Brazilian real rallied 1.26% against the USD on the back of an encouraging Q3 GDP reading which showed that the country’s growth rate increased by 7.7% month-on-month compared with the second quarter of this year. Although the figure came below the local analyst’s forecasts (8.7%), it was welcomed by market participants, leading the BRL to jump to a four-month high. Services PMI release also provided an extra boost to the currency, reporting that Brazil's private sector saw a welcome upturn in output during November and enjoyed a healthy upswing in new work intakes, which supported the first increase in headcounts since February. Moreover, Latam FX peers also cheered Brazil’s positive economic readings, with Colombian and Mexican currencies hitting nine-month highs on Thursday.


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