Daily Market Pulse

The weekly U.S jobless claims report is set to show the labor market stagnating


After Trump's decision on Tuesday to eliminate stimulus trades, markets printed a more resilient tone yesterday, looking at things from a different angle. Thus, the dollar slightly weakened 0.1% against a broad basket of major currencies, which helped boost soft and metal commodities, as well as the major currencies (NOK +0.7%, AUD +0.52%, EUR +0.33%, GBP +0.32%, etc.). Yesterday evening, Vice-President Mike Pence and Senator Kamala Harris performed the first VP debate and the contest was civilized compared to the previous Trump-Biden debate. The responses on the economy, taxes, and Covid-19 pandemic from both of the Vice-Presidential contenders seemed to have not caused any market reaction. Of today’s releases, the weekly U.S jobless claims report is set to show the labor market stagnating, with a further 820,000 initial claims expected in the 7 days to 3rd October.


The EUR managed to recover part of its losses from the day before and closed 0.33% up against the USD on Wednesday as the improvement in risk appetite weighs on the greenback. The focus continues to be on how Europe will deal with the second Covid-19 wave. France, Spain, and the Czech Republic posted record increases in Covid-19 cases, underscoring growing alarm on the continent as it struggles to control the pandemic. Late today, the U.S Job report will be a catalyst and is likely to offer another signal of the risk tone while Brexit talks will garner plenty of interest after the U.K. government warned it will pull out of trade talks with the EU.


Yesterday, the more positive tone saw the USD roll-over and the GBP edged up 0.32%. Trump tweets were dropped to a second plan after U.S. House Speaker Nancy Pelosi signaled openness to an airline-relief bill in a call with Treasury Secretary Steven Mnuchin after President Donald Trump pulled his negotiators from broader stimulus talks. According to Bloomberg, Brexit negotiations are at risk of breaking down, after the U.K. government warned it will pull out of trade talks with the European Union if there is no clear deal by Oct. 15. EU officials, however, have said they won’t be pressured into making concessions. Looking forward, the lack of stats leaves the Pound firmly in the hands of Brexit updates. Furthermore, the Bank of England Financial Policy Committee Meeting Minutes is expected later today.


According to the Japanese Cabinet Office, the index of coincident economic indicators, which consists of a range of data including factory output, employment, and retail sales, rose a preliminary 1.1 points from the previous month to 79.4 in August. Also, the index for leading economic indicators, which is a gauge of the economy a few months ahead and is compiled using data such as job offers and consumer sentiment, grew 2.1 points to 88.8 from July. Although both indicators came in line with market forecasts, the JPY failed to hold onto its recent gains and fell 0.32% against the USD amid the recent global risk-on mood. Later today, Japan’s Eco Watchers Survey for September will be a catalyst and is likely to offer another positive signal to the risk tone. The survey is considered as basic material for assessing short-term economic trends in Japan.


The CAD strengthened 0.41% against the USD on Wednesday as risk-off sentiment started fading and calm returned to the stock market after Trump’s tweets poured cold water on continued U.S stimulus talks. However, the CAD gains were capped after oil prices plunged as much 2% on oversupply concerns. The West Texas Intermediate (WTI) crude oil settled 1.8% lower at  $39.95 a barrel, below the $40 benchmark psychological-level, while Brent crude futures were down 2.7% to $41.51 a barrel. Today, the Bank of Canada (BOC) Governor Tiff Macklem is expected to take part in the Global Risk Institute's online summit and his comments on Canada’s further monetary policy need will be closely observed. Furthermore, the weekly U.S Initial Jobless Claims, expected at 820K, will join the risk catalysts like Covid-19 updates, U.S stimulus news providing extra direction to the CAD.


The MXN rose almost 1.25% against the greenback on Wednesday, gaining some ground after having registered losses the day before. The currency market remains optimistic with the infrastructure investment plan worth around USD 14bn presented at the beginning of the week by president Andres Manuel Lopez Obrador, thus the Mexican peso continues to find support in the long-term perspective of the country's economic recovery. Today, Mexico’s central bank is due to release the minutes from its most recent monetary policy decision (Sep, 24), where it unanimously moved to cut the target rate by -25 bps to 4.25%, as well as release the Consumer Price Index for September.


The markets will remain shut for its Golden Week holidays until Thursday


The BRL depreciated (0.30%) against the USD on Wednesday, on the back of news relating to the end of the country's emergency budget. The BRL slipped after Economy Minister, Paulo Guedes, reiterated that despite the state of calamity caused by the Covid-19 pandemic the emergency budget will end in December. Moreover, Mr. Guedes denied that there was any possibility of extending emergency aid until mid-2021. It is not easy reading. On the one hand, the end of emergency aid alleviates the public budget spending and signals that the government is committed to not exceeding the spending limit, but on the other hand, the end of aid packages may cause a slower economic recovery in the country. Today, traders will keep a close eye on the retail sales report, which will show how the purchase volumes at stores, at restaurants and online performed in August.


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