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Canadian dollar update – Thursday December 12, 2019. Dovish Powell sends USD lower – all eyes on ECB and BoC Governor Poloz.

Currency-Market-Update-Thursday-2
Albert Edwards
by Albert Edwards on December 12, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD lower after The Federal Reserve kept interest rates unchanged at 1.75% and Chairman Powell said he would only raise rates after seeing persistently higher inflation. Powell’s dovish stance dropped USD and contrasted his previous statement for the future growth outlook. Markets interpreted this as the Fed will cut rates again before a hike, and no plans to change rates in 2020. Consumer Prices for November was 0.3% monthly and 2.1% yearly (highest since November 2018); meanwhile, Core Inflation remained at 2.3% year over year (as expected).  Markets will now focus on President Trump’s decision regarding imposing new tariffs on China this Sunday. Trump has been critical of the Fed regarding monetary policy and may refrain from more levies against Beijing.

Canadian dollar highlights:

CAD stronger due to higher oil prices and USD softness. In addition, officials from Mexico and the U.S. signed the USMCA trade agreement to improve enforcement of worker rights and eliminating a patent provision to keep the prices for biological drugs low. The deal still needs approval from the U.S. House and Senate to become official. All eyes on Bank of Canada Governor Poloz’s speech in Toronto today.

Euro highlights:

EUR firm ahead of the European Central Bank’s policy announcement today. Markets expect the rates to remain unchanged through 2020 and 2021. New President Christine Lagarde will reiterate they have reached the central bank’s policy limit; however, the economy still needs more public spending by Germany and the Netherlands to assist with recovery. EUR reached a six-week high after U.S. Fed Chairman Powell’s dovish comments yesterday; however, EUR is still vulnerable to drop (after Lagarde’s comments) and this may cause safe-haven USD strength again.

British pound highlights:

GBP defensive after the latest YouGov poll revealed that the Conservative Party’s majority dropped by 20 seats. Prime Minister Boris Johnson’s Tories are now predicted to win 339 seats and Labour will take 231 seats. Markets are now concerned about the possibility of another hung parliament because this would affect Johnson’s ability to deliver his Brexit deal by the January 31, 2020 deadline. GBP will be under pressure until the election results. This will be the third election in four years for the United Kingdom.

 

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