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Greenback firm on trade optimism but Q2 growth slows.

Currency-Market-Update-Friday-1
Albert Edwards
by Albert Edwards on September 27, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD neutral and has been in a tight range all week due to geopolitical concerns. President Trump signed a limited trade agreement with Japan that will lower Japanese agricultural tariffs and industrial tariffs in the United States. Trump also set new rules for digital trade with Japan and said a deal with China is likely to happen sooner than expected. Markets are hopeful the ongoing trade war will come to an end soon to provide stability. Meanwhile, GDP for Q2 showed 2% growth (as expected and previously 3.1%). This confirmed the economy slowed down last quarter as weaker business investment and stronger inflation continue to affect the economy. The downsizing in growth is expected to continue to the end of 2019 (due to the trade dispute with China). The initial jobless claims last week was 213K (lower than expected 215K and previously revised to 210K). Weak stock markets and geopolitical concerns will keep USD firm as risk appetite is lower.

Canadian dollar highlights:

CAD remains weak and vulnerable due to fluctuating oil prices and is dependent on positive trade developments between U.S. and China. The Bank of Canada remains under pressure to follow other central banks to lower interest rates; however, CAD weakness has been limited due to the central bank’s neutral stance. Average weekly earnings increased 2.7% yearly in July due to increased administrative and support services (previously revised to 2.1% increase in June). Producer Prices for August, GDP for July and Unemployment Rate for September all available next week.

Euro highlights:

EUR continues weaker and approaching record lows on Brexit risks. After the European Central bank announced an interest rate cut earlier this month, EUR has been defensive and unable to recover. Meanwhile, German Consumer Confidence was stronger than expected at 9.9 reading (versus 9.6 forecast) to ease concerns that the manufacturing recession is spreading throughout the Eurozone.   EUR direction will continue to be determined by U.S. impeachment news and risks of a no-deal Brexit (or another extension).

British pound highlights:

GBP remains weak due to increased political tensions. Parliament resumed and Prime Minister Boris Johnson refused to apologize for suspending parliament. Johnson blamed the opposition for the new bill that will block a hard Brexit, and this increased frustrations. The divisions in parliament mean that if a Brexit deal is finalized, chances of approval are low. Meanwhile, talks between the European Union and the U.K. continue in Brussels while parliament continues to argue.

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