U.S. Dollar Highlights:
USD gaining momentum, but still firm due to higher stock markets in Europe, lower futures, Brexit risks lower and trade tensions with China easing. Trade Secretary Steven Mnuchin said that a lot of progress was made in trade talks recently; however, the Chinese press made critical comments of White House trade advisor Peter Navarro. Markets will continue to monitor negotiations between the world’s two largest economies for USD direction. A trade deal finalized with China will lower USD and satisfy President Trump, but bond markets are weaker, and lower treasury yields will provide support for USD. All eyes on producer prices for August and crude oil stocks report available today.
CAD stable but remains vulnerable to oil prices and trade developments with China. Oil prices increased above $58.00 per barrel to give CAD support (and highest level in six weeks). OPEC and other oil producing countries may agree to extend output cuts to support higher prices. Meanwhile, building permits for July increased 3.0% (versus 2.0% expected) and housing starts in August increased 1.9% to 226K (versus 215K expected).
EUR defensive as markets wait for the European Central Bank’s monetary policy decision tomorrow. All eyes on the central bank as they are expected to cut interest rates and announce the restart of its asset purchases program. Markets are also anticipating the central bank may be less dovish in the press conference (with a rate cut already priced in). Industrial production in July improved (particularly in France), but dropped 0.7% in Italy. Meanwhile, Moody’s rating agency reduced Italy’s 2019 growth forecast to 0.2% (from 0.4%). EUR is also affected by Brexit volatility and U.S.-China trade developments.
British Pound Highlights:
GBP lower, but remains on a five-week high due to positive Brexit news from parliament last week. Prime Minister Boris Johnson suspended parliament until October 14 and his bid for an early election was rejected. Johnson will meet with European Union officials on October 17 and he is expected to ask for another deadline extension if he can not finalize a departure agreement. However, Johnson may also stand firm and not ask for another Brexit delay. Meanwhile, the July unemployment rate dropped to 3.8% (versus forecast of 3.9%). Despite increased political tensions and Brexit uncertainty, the U.K. economy has not been affected and performing well.