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Greenback firm on trade optimism and eased political tensions.

Currency-Market-Update-Monday-1
Albert Edwards
by Albert Edwards on September 30, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD strong after positive trade developments with China and markets have moved on from the impeachment inquiry into President Trump. Last week China said they were in close communication with the United States and preparing to make progress during higher-level talks next month in Washington (October 10-11). Trump’s main issues are still the trade deficit with China, intellectual property theft and the forced transfer of technology. Meanwhile, Personal Income for August increased 0.4% monthly (as expected and previously 0.1%); however, Personal Spending only increased 0.1% (versus 0.3% forecast and previously 0.5%). Durable goods orders also increased 0.2% in August (mostly due to defense spending). All eyes this week will be on trade progress and the September Jobless report (available Friday).

Canadian dollar highlights:

CAD defensive as oil prices dropped after a faster than expected recovery in Saudi Arabia. After drone attacks on one of Saudi’s main facilities, markets were concerned about demand. Meanwhile, the government of Alberta announced plans to reduce oil supply. However, CAD direction will be mainly determined by trade progress as China said they purchased a large amount of U.S. soybeans and pork products before the talks next month. All eyes this week will be on the Producer Prices Index report for August (available today) and GDP for July (available tomorrow). Markets will also focus on the Federal elections next month.

Euro highlights:

EUR dropped to a two-year low after weak growth outlook continues to affect the economy. European bonds are lower after German business activity weakened in addition to concerns over Britain’s economy. Trade tensions between U.S. and China, political chaos in Britain and fears of a global slowdown are also affecting confidence in the Eurozone. The European Union’s top economic advisor Valdis Dombrovskis also said that growth is slowing due to the unclear outcome of Brexit. All eyes this week will be on the August jobless report (available today), Consumer Prices for September (available tomorrow) and Retail Sales for August (available Thursday).

British pound highlights:

GBP remains under pressure after Bank of England official Michael Saunders was dovish last week and said interest rates may need to be reduced due to Brexit uncertainty. Even if a deal is reached with the European Union, Saunders said further monetary policy may be required. This is the first signal of a rate cut from the central bank; meanwhile, markets are pricing in the probability of a no-deal Brexit. If the U.K. leaves the European Union without a transition agreement, they will revert to trading under World Trade Organization rules (which would harm the economy due to tariffs with the Eurozone).

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