Friday, December 9, 2022

Currencies Recover On COVID-19 Stimulus Talk


At the start of the New York trading session, all of the major currency pairs, from to , were headed lower. That was the trend for most of the morning, but at midday, Senator Chuck Schumer said Senate Majority Leader Mitch McConnell had agreed to restart coronavirus stimulus talks. Investors cheered this news, sending stocks back into positive territory. Currencies followed suit with the euro, and other major currencies erasing all of their losses to end the day higher versus the greenback. Although USD/JPY and lost value, their sell-off were moderated by the turnaround in risk. 


The and report also show the U.S. economy performing better than expected. While manufacturing activity in the Philadelphia region slowed, it was not as bad as expected. Existing home sales also beat expectations, rising 4.3% against -1.2% forecast. There’s no question that the fourth quarter will be a tough one for the U.S., but slowing from a higher base could be good news. Regardless, investors are selling dollars, and this trend could continue in the near term as more states apply restrictions. Yesterday, the market reacted negatively to New York City’s decision to close schools and today, stocks fell when Mayor Bill de Blasio said indoor dining could be closed in the next week or two.  As the U.S. heads into the Thanksgiving holiday, which is time of family gatherings, states are trying to take steps that can hopefully prevent the virus from spiralling out of control in December. 


The euro continues to be one of the biggest beneficiaries of U.S. dollar weakness. Thanks to the restrictions taken by European governments, the virus is spreading more slowly. If they turn things around before Christmas and business activity can resume in a less restrictive way, the rally in the currency would be justified, which is what investors are banking on. Sterling also recovered earlier losses despite the European Union’s decision to suspend Brexit talks after a team member tested positive for COVID-19. UK are due for release tomorrow and, given the decline in spending reported by the British Retail Consortium, the risk is to the downside. Europe began closures in October, so October and November data from the UK and Eurozone should be particularly ugly.


All three commodity currencies turned positive by the end of the New York session. Canadian are scheduled for release tomorrow and, given the rise in wholesale sales, improvement in labor market conditions and an uptick in consumer prices, we are looking for stronger numbers that could extend losses in . Australia reported blowout labor data, with more than 178,000 jobs created last month. To put this into context, economists anticipated a decline of 30,000 jobs. What makes the report even more impressive is the fact that there was solid upticks in full- and part-time employment and an increase in participation. This is a direct result of easing restrictions in Victoria and is something European nations can look forward to when they get the second virus wave under control.  

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