U.S. dollar highlights:
USD stable as markets wait for tomorrow’s FOMC policy announcement. After last month’s strong employment report, the Fed is expected to continue holding interest rates during the last meeting of the year. The jobless rate dropped to 3.5% to match the fifty-year low and annual wages increased over 3% for the sixteenth straight month. After the third rate cut this year in October, the Fed halted the cycle after the improved global outlook and the economy recovered. Meanwhile, China’s exports declined 1.1% yearly in November (for the fourth straight month) as shipments to the U.S. slowed by 23% (but imports unexpectedly increased 0.3%). Unless the world’s two biggest economies can finalize Phase One of the trade agreement by next Sunday December 15, President Trump will impose another round of tariffs on Chinese goods.
Canadian dollar highlights:
CAD defensive after crude oil prices dropped as China’s exports declined. The ongoing trade conflict is causing China’s economy to slow while the U.S. economy is stronger. After last month’s weak unemployment report, the Bank of Canada is under pressure and markets expect a rate cut soon. Currently a 22% probability of a rate cut (already priced in for March 2020) and previously 18% before last Friday. Governor Poloz speaks in Toronto on Thursday and any positive comments on the outlook will strengthen CAD.
EUR defensive this week after Germany’s trade surplus increased in October and industrial production decreased 1.7% monthly. Retail Sales and factory orders also declined more than expected as the Eurozone’s biggest economy is not showing any signs of recovery. EUR is also under pressure ahead of the European Central Bank’s policy meeting on Thursday. Markets are expecting new President Christine Lagarde to keep an accommodating stance and no hints of more quantitative easing. A rate cut has already been priced in for Q1 2020.
British pound highlights:
GBP stronger after current polls indicated the Conservative Party extended its lead against the Labour Party. Boris Johnson currently has a 14% lead (from 9% last week) ahead of Thursday’s election. GBP has strengthened on expectations that the Conservatives will win a majority government and parliament will approve Johnson’s Brexit bill. Markets are optimistic that after 3.5 years of Brexit uncertainty and increased political tensions, the U.K. may finally leave the European Union (by January 31, 2020).