The U.S dollar index, which tracks the USD against a broad basket of major currencies, rose 0.4%, on Thursday reaching close to a two-month high. The USD was boosted by positive employment data, which reported that 779,000 initial jobless claims were filed over the past week, fewer than the 830,000 claims predicted in market forecasts, and 812,000 claims were reported during the previous week. The recent USD rally is catalyzed by strong employment and manufacturing indicators, stimulus hopes, as well as the rapid pace of Covid-19 inoculations. Further labor market data, including non-farm payrolls, is due later in the day.
The common currency dropped 0.62% against its rival U.S dollar on Thursday, extending declines for a fourth consecutive day and with the EUR/USD pair off more than 1.2% this week. The decline is, partially, based on the EU's poor inoculation performance. France, Germany, and Italy are lagging behind the U.K. and U.S. among G-7 nations in terms of vaccination programs while investors are wondering how long it will take to reach herd immunity at the current pace. On the economic front, market players seem to have ignored the Eurozone retail sales rebounded in December. The European Union’s statistics office, Eurostat, said retail sales in the 19 countries sharing the euro rose 2.0% month-on-month in December, beating consensus forecasts of a 1.6% increase. Looking ahead, Germany Factory Orders and France Trade Balance for December are due later today.
The GBP/USD pair edged up 0.2% after the Bank of England (BoE) kept its February interest rate at 0.10% and maintained the Asset Purchase Programme target at £895bln as it handed down its policy decision on Thursday. Among the BoE’s remarks, the following is the most significant to the market, the Committee “was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future”. This means the BoE wanted to make clear that negative rates are not under consideration in this cycle. Today, BoE Governor Bailey will be making remarks throughout the afternoon while traders keep also an eye on the U.S job report.
From January to this week, the Japanese yen has tumbled more than 2% against the U.S dollar, with the JPY marking a seventh consecutive day of losses on Thursday. The currency closed 0.48% down on the day even after Japanese household spending data showed that household spending in the country rose by 0.9% in December after dropping by 1.8% in the previous month. This increase was better than the expected decline of 1.9%. Looking ahead, In the absence of material economic data, traders will continue to price in the JPY in the function of U.S headlines.
The Loonie has not enjoyed the same positive momentum in the first few weeks of 2021 that it saw in closing out 2020. Yesterday, the CAD closed down 0.32% against its U.S counterpart for the second straight trading session. A clear CAD’s direction depends on the pace of Canadian vaccination, while it remains at a slow pace, it suggests that the Canadian economy may be disadvantaged relative to some of its peers as other G10 economies regain their growth potential quicker. Canada has also set up direct deals with the Covax program to secure additional vaccines. Covax is a program to provide vaccines to poor and developing countries. Canada is the only G-7 nation to have rights to receive shots under the Covax scheme.
The Mexican peso tumbled 0.89% against the USD on Thursday after the Supreme Court (SCJN) has rescinded key elements of a federal energy policy in a major setback for the government, which is trying to reshape the electricity market to favor the state-owned Federal Electricity Commission (CFE). The government’s move would have given state-owned electricity generators an edge in the sector and was met with criticism from private businesses. Today, optimism in the broader oil market, with crude prices set for the biggest weekly gain since October, provides support to the MXN.
The Chinese yuan slid 0.26% against a stronger U.S dollar on Thursday. However, strong data capped further losses. Data from China Central Depository & Clearing Co. showed that foreign investors raised their holdings of Chinese bonds for the 26th month in a row in January, fueled by faster-than-expected economic recovery and a firming CNY. In total, international investors held about 473.6 billion U.S. dollars of Chinese bonds in January, surging 62% from the same period last year. This suggests that the soaring appetite among global investors since last year stemmed from China's solid economic recovery, widening spread of Chinese 10-year government bonds over their U.S. counterparts, as well as a steady yuan.
The Brazilian real fell 1.5% against the greenback on Thursday amid mixed catalysts. On the one hand, fiscal worries remained to outweigh stimulus hopes, on the other, optimism that the government’s reform agenda will resume shortly after allies of President Jair Bolsonaro were elected at the beginning to head the Congress and Senate, capped further BRL’s losses. In the upcoming weeks, it is expected that Brazilian assets will be buoyed by the aligned speeches between the new Congress leadership and the federal government.