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Greenback firm on pro-risk sentiment - focus on trade deal

Currency-Market-Update-Wednesday-1
Albert Edwards
by Albert Edwards on November 06, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD safe-haven strength continues as markets remain optimistic a partial trade agreement will be finalized this month. China asked for tariffs to be rolled back before signing Phase One of a trade deal; meanwhile, Chinese manufacturing services dropped to 51.1 reading last month (as expected). Markets have already priced in a trade deal as sentiment improves and risk-on continues. Trade deficit for September dropped 5% due to lower imports from China and Germany (five-month low). The trade war has affected imports and exports and the trade gap in goods with China dropped 13.4% already this year.

Canadian dollar highlights:

CAD weaker after OPEC cut oil demand forecasts for 2019 through 2023. The Trade balance also dropped to $978 Million CAD in September (previously revised to $1.2 Billion deficit in August). Imports decreased more than exports due to concerns about global growth. The Bank of Canada is concerned about weak business investment from the ongoing trade dispute and may also consider cutting interest rates in 2020.  

Euro highlights:

EUR stable after European Central Bank member Madis Muller said “there is no change expected for the near term” regarding monetary policy. New President Christine Lagarde also did not mention any plans to add stimulus to boost the economy in her first speech on Monday. Spain’s jobless claims also increased by 98K (versus 62K expected). Meanwhile, Producer Prices for September increased 0.1% monthly (as expected) but decreased 1.2% year over year (also as expected). EUR will be vulnerable due to uncertainty in the U.K. election next month. All eyes on September Retail Sales available today.

British pound highlights:

GBP defensive after Prime Minister Boris Johnson’s Conservative Party seats are at risk of being challenged by the Brexit Party. GBP will be vulnerable to polling results up to the December 12 election date. Jeremy Corbyn’s Labour Party lead in London is currently at risk of losing six seats. Meanwhile, construction shrank last month (for the sixth month in a row) due to political uncertainty affecting growth. All eyes on the Bank of England’s monetary policy meeting and inflation report available Thursday.