U.S. dollar highlights:
USD defensive ahead of the Federal Reserve interest rate decision today. The Fed already lowered rates three times this year; however, each rate announcement and following press conference by Chairman Powell caused USD higher (due to the cut already priced in). The Fed stopped the rate cut cycle in October and mentioned the economy is strong and recovering, but trade risks remain. Meanwhile, Consumer inflation in China increased 4.5% yearly in November (close to the highest in eight years) as prices for pork surged higher due to low supply. In comparison, October’s CPI was 3.8% growth. President Trump may delay the planned tariff hike on Chinese imports scheduled for December 15. Markets will interpret this as positive developments and increased hopes that Phase One of the trade deal will get signed.
Canadian dollar highlights:
CAD firm after the USMCA agreement (formerly NAFTA) is close to being approved. Prime Minister Justin Trudeau may also implement middle class tax cuts (worth $3 billion CAD and 1% of GDP) by January 2020. The Bank of Canada is less likely to cut rates in Q1 2020 with Trudeau’s fiscal stimulus. CAD will be under pressure the rest of week due to the Federal Reserve and European Central Bank monetary policy decisions. All eyes also on Governor Stephen Poloz’s speech tomorrow in Toronto.
EUR stronger after the German ZEW Economic Sentiment Survey for December increased to10.7 (versus 0 expected and -2.1 last month). Overall, the Eurozone reported an increase to 11.2 (from -1 in November and higher than expected 2.2 reading). Industrial Production from France increased 0.4% monthly to also support EUR. Germany is still vulnerable to a recession in Q4 and markets are monitoring improvements in factory orders, retail sales and industrial production. Meanwhile, Brexit uncertainty has lowered, and the U.S.-China trade tensions have eased.
British pound highlights:
GBP continues stronger, despite GDP contracting the worst three months in more than ten years. Output decreased in August, September and October as manufacturing contracted 0.7% and construction also dropped by 0.3%. In addition, the trade balance increased to £14.5 billion in October (from £11.5 billion previously). A majority win for the Conservative Party is predicted and supporting GBP. Prime Minister Boris Johnson may get his Brexit deal approved by Parliament before the end of 2019. Markets are now forecasting Friday December 20 as the next Brexit voting day. However, if Johnson does not secure a majority, GBP will drop again and the chances of requesting another extension increase.