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Greenback lower on weak data – all eyes on Brexit extension.

Currency-Market-Update-Friday-1
Albert Edwards
by Albert Edwards on October 25, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD lower as Durable goods orders for September dropped by 1.1% (worse that -0.6% expected). Lower orders for automobiles and parts, and for commercial aircraft caused the decline. Initial Jobless Claims last week was 212K (higher than expected 203K and previously revised to 218K). Meanwhile, New Home sales for September declined 0.7% to 701K. However, the Manufacturing Index increased to 51.5 in October (from 51.1 previously in September) and this was the strongest expansion in factory activity since April. The Services sector also expanded at its fastest paces since July with a 51.0 reading (from 50.9 previously). Soft economic date weighing on USD currently and giving the Federal Reserve more reason to cut interest rates next week.

Canadian dollar highlights:

CAD stable as markets wait for the Bank of Canada’s policy decision next week. The central bank is expected to hold interest rates and continue to depend on economic data (unlike the Federal Reserve). Meanwhile, CAD will also be vulnerable to geopolitical events (Brexit uncertainty and trade talks between U.S. and China). Prime Minister Justin Trudeau said his Liberal minority government will go ahead with the Trans Mountain oil pipeline as crude prices remain firm.

Euro highlights:

EUR weaker and defensive after the European Central Bank said they will keep interest rates on hold until inflation recovers close to the 2% target. The main refinancing rate remains at 0% and the deposit rate at -0.5%. Meanwhile, the Manufacturing Index for October was 45.7 (same as previous and lower than expected 46 reading) as new orders, employment and exports continue to decline. The Services Index for October increased to 51.8 (from 51.6 in September), but still the weakest since 2014. Central Bank President Mario Draghi said that the “weaker growth momentum” is delaying stronger wage growth and inflation during his last speech. All eyes on the European Union decision on whether to grant another Brexit deadline extension today.

British pound highlights:

GBP weaker after Prime Minister Boris Johnson called for a snap election on December 12. Johnson said “parliament can study the Brexit bill before a dissolution” as he hopes to gain more support. Johnson will require two-thirds of parliament votes to approve an election and his opponents want to rule out a no-deal Brexit first. The European Union is expected to approve Britain’s request for another deadline extension of Article 50 and markets are expecting another three months (until January 31, 2020). All eyes remain on Brexit developments.