U.S. dollar highlights:
USD lower and defensive after Presidents Trump and Xi signed the trade agreement. Market sentiment improved after China agreed to put together new laws as promised and the U.S. agreed to no additional tariff rollbacks in Phase Two. China will also spend more on manufacturing, energy and agricultural imports. President Trump announced that tariffs would be removed after agreeing to a Phase Two trade deal. Trump was also critical of the Federal Reserve and this kept USD under pressure. Meanwhile, Producer Prices for December increased 0.1% monthly (from -0.2% previously) and 1.3% yearly (from 1.1% in November). All eyes on the Retail Sales report for December available today and Manufacturing Production available Friday.
Canadian dollar highlights:
CAD stable as oil prices remained flat and a trade deal is positive for the economy. Business confidence improved in Q4, but CAD remains vulnerable ahead of next week’s Bank of Canada meeting. Governor Stephen Poloz said any weakness is transitory while employment is rebounding. Brexit and trade risks have reduced, and markets anticipate the central bank will remain dovish for Q1. Meanwhile, existing home sales for November dropped 0.9% (versus 0.6% gain expected).
EUR weaker and defensive after Germany’s economy grew by 0.6% (as expected), however, this was the weakest expansion since 2013. After 1.5% growth in 2018, trade disputes and geopolitical tensions are affecting the economy. Chancellor Angela Merkel wants more corporate tax cuts, while the Finance Minister is encouraging more public investment. Central bank President Christine Lagarde speaks today and Inflation rate for last month available Friday.
British pound highlights:
GBP weaker after the December inflation rate dropped to 1.3% (from 1.5% previously). Core inflation also dropped to -0.4% (from 1.3% growth in November). Since both Consumer Price measures are below the 2% target, markets have now started to price in a rate cut from the Bank of England. Another Monetary Policy Committee member supports a rate cut so Governor Mark Carney is under pressure to boost the economy. Retail sales for December expecting to improve 0.5% monthly and 2.6% yearly today.