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Greenback firm ahead of Fed 25bps rate cut already priced in.

Currency-Market-Update-Wednesday-1
Albert Edwards
by Albert Edwards on October 30, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stable as weaker stocks are creating risk aversion while treasuries advance. All eyes on the FOMC meeting today as markets will pay attention to the policy outlook and any signals of further rate cuts. If the Fed hints that they could consider reducing asset purchases in the future and the economy continues to improve, USD will be under pressure. President Trump said that negotiations with China are ahead of schedule and a partial deal (Phase 1) may be signed next month at the APEC summit in Chile. Treasury Secretary Steven Mnuchin said he would be open to looser bank rules. Meanwhile, Pending Home Sales for September increased 1.5% monthly and 3.9% year over year (both higher than expected). GDP Growth rate for Q3 expecting 1.6% expansion today (previously 2% growth in Q2).

Canadian dollar highlights:

CAD defensive on lower oil prices after Saudi Arabia said they are ready for more output cuts to slow production. The Bank of Canada is expected to leave interest rates unchanged at 1.75% today. Markets have priced in only a 15bps cut until the end of 2020. Meanwhile, the economy performed better than forecasted in Q3 (even though the global outlook is still a concern).  

Euro highlights:

EUR weaker due to Brexit uncertainty after the European Union granted the U.K. a three-month flextension until January 31, 2020 (with the option to leave earlier). EUR is also vulnerable due to the Federal Reserve’s monetary policy meeting starting today as market tone is less dovish. All eyes on the October Inflation Rate and GDP Growth Rate for Q3 today.

British pound highlights:

GBP stable after Prime Minister Boris Johnson agreed to remove the no-deal Brexit option. The U.K. will now prepare for a December 12, 2019 general election. Labour party leader Jeremy Corbyn announced he was ready to fight the “most radical campaign ever”. After Parliament rejected Johnson’s third attempt to force an early election, he decided to get Corbyn’s support by taking the no-deal ultimatum off the table. Johnson’s Conservative party does not have the majority in Parliament.

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