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Greenback lower on Brexit optimism and dovish Fed

Currency-Market-Update-Monday-3
Albert Edwards
by Albert Edwards on October 21, 2019

CURRENCY MARKET UPDATE

U.S. Dollar Highlights:

USD lower after Federal Reserve Vice Chairman Richard Clarida said last week that the central bank will “act as appropriate” to extend recovery and shield the economy from geopolitical risks. Slowing global growth is also affecting USD due to increased trade tensions. In addition, September retail sales decreased for the first time in seven months to confirm the economy is slowing. Markets have now priced in a 90% chance of another interest rate cut later this month. Meanwhile, the Court of Appeals for the District of Columbia Circuit will decide on the House of Democrats’ impeachment inquiry and President Trump’s desire to not reveal personal information and limit his allies from cooperating with investigators. Markets will focus on trade developments for USD direction this week.

Canadian dollar highlights:

CAD steady and near the strongest level since July after oil prices increased and higher home prices in September. Manufacturing sales also increased in August and Brexit optimism also supporting CAD. The Bank of Canada remains the only central bank not considering lower interest rates. Optimism about an announced “phase 1” of a trade deal between U.S and China has kept CAD firm the past week. Chinese trade negotiators are finalizing the text for the first phase of the deal for Presidents Trump and Xi to sign next month. All eyes on the Federal election today, the Bank of Canada’s Business outlook survey tomorrow and the Interest rate decision on Wednesday.

Euro highlights:

EUR stronger as increased hopes of a Brexit deal decreased the chances of a recession in the Eurozone. Weak manufacturing, geopolitical tensions and Brexit uncertainty have affected the EUR lower all year. Also, Eurozone’s current account surplus widened to 27 billion EUR in August (from 22 billion EUR in July). All eyes on the Interest rate decision and press conference on Thursday.

British pound highlights:

GBP firm after British Parliament delayed approval of Prime Minister Boris Johnson’s Brexit deal. Parliament voted to postpone ratification of the deal until legislation required to enact it is passed. A letter was sent to Council President Donald Tusk explaining the law passed to prevent a no-deal Brexit. As a result, Johnson was forced to request for an extension of Article 50 to the European Union. However, Johnson said a three-month delay would be “corrosive”.  Johnson also said that he “will not negotiate a delay with the EU, and neither does the law compel me to do so” and “further delay will be bad for this country”. Markets will continue to monitor Brexit developments for GBP direction.

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