Daily Market Pulse

U.S Senate Decision

5 minute read


USD – The U.S dollar moved sharply towards a level not seen since March 2018. The DXY index which tracks the USD against a broad basket of major currencies closed 0.48% down on Tuesday. Nonetheless, the USD’s losses were capped after the Institute for Supply Management (ISM) said its index of national factory activity rebounded to a reading of 60.7 last month as spiraling new Covid-19 infections pulled demand away from services towards goods. Once again, U.S politics will be at the fore today. The outcome of the Georgia Senate runoff election, where the Republicans are facing off against the Democrats, will be the major driver in the FX market.


The common-currency inched up 0.38% against the greenback on Tuesday, remaining firm into 2021 after German retail sales rose in November and jobless numbers fell last month, against forecasts that both readings would worsen, suggesting that the largest economy in the bloc have weathered the impact of the Covid-19 unexpectedly well. However, the upcoming weeks will be tough again for the sector, as Chancellor Angela Merkel extended and tightened its lockdown, limiting travel to 15 kilometers for those living in worst-affected areas and restricting private gatherings. Today, traders continue to watch out for the incoming results of the Georgia Senate race.


Although swamped hospitals expose the depth of Britain’s unfolding crisis, the FX market seems to ignore the consequences of the third lockdown. The Sterling closed up 0.41% against the USD on Tuesday while daily infections are at a record - one in 50 people in England now has the disease. The biggest driver for the Pound today will be the outcome of the Georgia Senate runoff election, as well as the final readings of the U.K Services PMI data, which is expected to show that the services sector remains in contraction as the country continues to deal with the virus.


The Japanese yen rose 0.37% in the second trading session of the year, supported by the broad weakness of the U.S dollar, in the face of an important political event for the markets – Runoff elections in Georgia that could give control of the upper house of Congress to the Democrats and therefore pave the way for more economic stimulus and higher taxes. On the data front, the Jibun Bank Japan Services PMI reported the service sector ended a turbulent year on a muted note with business activity and new orders remained in decline during December. Although the reading was expected, it is likely to cool the positive sentiment of the sector in early 2021. Today, all eyes will continue on the U.S Senate decision while the pair USD/JPY trades in a downward trend that has been in place since March.


The Canadian Dollar rebounded nearly 1% against its U.S counterpart on Tuesday after oil prices rallied almost 5%. Yesterday, during the Organization of the Petroleum Exporting Countries (OPEC) and its allies’ virtual meeting, Russia agreed not to increase production in February, and West Texas Intermediate oil tested the psychologically important $50 level. The CAD should continue to be supported by oil’s rally, but with market participants closely watching the Runoff Election in Georgia.


The Mexican peso rose 0.38% against the USD on Tuesday, recovering some lost ground from the day before. The MXN’s appreciation was in tandem with a rise in oil prices, where West Texas Intermediate crude rallied by nearly 5% after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) reached an agreement on production curbs starting in February, with Saudi Arabia voluntarily taking on a larger reduction. The MXN remains firm heading into 2021, but the next move could be driven by the outcome of the U.S Georgia Senate Runoff Elections.


The CNY continued to strengthen on Tuesday, after closing 0.08% up against the U.S dollar. The CNY found support from the recent note from the New York Stock Exchange that it has backtracked on plans to delist three Chinese state-run telecoms groups as it no longer intended to carry out the de-listings ‘in light of further consultation with relevant regulatory authorities.”. In contrast, earlier today, President Donald Trump signed an order banning U.S. transactions with eight Chinese software apps including Ant Group Co.’s Alipay in 45 days, when he’ll no longer be in office. Trump’s move could incite new diplomatic issues, but it will depend on President-elect Joe Biden, whether to continue with the restrictions or not. In general, the Chinese yuan remains on the strong foot heading into 2021.


The BRL closed up 0.22% against the greenback on Tuesday, with market players monitoring the progress of Covid-19 around the world, the imposition of new lockdowns in Europe, and the dispute for the last two seats in the U.S Senate. São Paulo has confirmed two cases of mutated Covid-19, however, there is no data to track the spread for this new variant. Elsewhere, after the record inflow of foreign capital on the stock exchange in November, foreign investors continued to invest in domestic shares in the last month of 2020. In December, the inflow was BRL 19.744 billion - the second-largest monthly contribution in the entire historical series started in 1996. Looking ahead, concerns over the pandemic and Brazil's fiscal health will continue to weigh on the BRL.


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