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Greenback Lower On Weak Inflation and Renewed Trade Optimism

Albert Edwards
by Albert Edwards on October 11, 2019


U.S. Dollar Highlights:

USD weaker after September Consumer Prices remained unchanged at 1.7% yearly (lower than expected 1.8%). Core Inflation also remained unchanged at 2.4% yearly. However, CPI declined 0.1% monthly (previously 0.3%). Meanwhile, initial jobless claims for last week was 210K (previously 220K) and earnings in September contracted -0.1%. High level trade negotiations with China started yesterday and an official from the U.S. Chamber of Commerce said there was a possibility of a currency agreement in exchange for a delay in punitive tariffs. Chinese Vice Premier Liu He said they are willing to reach an agreement “on matters that both sides care about”. China also offered to buy more agricultural goods if Trump refuses to hike tariffs (on October 15 and December 15). Positive trade developments improved risk sentiment and dropped the dollar index. USD will remain under pressure today with higher crude oil prices and positive Brexit news.

Canadian Dollar Highlights:

CAD firm after oil prices increase on renewed trade optimism between U.S. and China. New Housing prices index for August increased 0.1% (versus -0.1% decline forecast) to give CAD more support. Markets are focused on the September Unemployment Rate today (no changes expected at 5.7%) and average hourly wages. The Bank of Canada will also pay close attention to the number of full-time employees as they remain stable and data dependent regarding monetary policy.

Euro Highlights:

EUR stable after French industrial production declined -0.9% unexpectedly in August (versus 0.3% expected gain). Brexit risks and increased chances of a partial trade deal remain the key for EUR direction. Meanwhile, the European Central Bank’s latest meeting minutes indicated many members opposed the latest stimulus measures. Markets were expecting more clarity on the Quantitative Easing program and potential further interest rate cuts.

British Pound Highlights:

GBP stronger after Prime Minister Boris Johnson and Ireland’s Prime Minister Leo Veradkar agreed there is a chance for a Brexit deal. Talks will continue today and both sides believe a deal can be finalized before the October 31 deadline. GBP rallied after positive Brexit news as Britain proposed a “pared-down free trade agreement”. Markets have now priced out a hard Brexit and GBP is recovering. Meanwhile, GDP for August was -0.1% monthly (as expected) and 1.1% year over year (higher than expected 0.9%). Manufacturing Production dropped to -0.7% monthly and Industrial Production also dropped -1.8% yearly.