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Greenback Soft Due to Risk Appetite – All Eyes on Jobless Reports

Currency-Market-Update-Friday-1
Albert Edwards
by Albert Edwards on September 06, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD has been trading lower this past week due to eased trade tensions with China and the result of softer economic data. China Vice Premier Liu will visit Washington in October as trade talks resume between the world’s two biggest economies. Markets have started to factor in the risk that the Federal Reserve may take more aggressive actions regarding interest rates at the next FOMC meeting on September 18th. China is also prepared to stimulate its economy, which will result in stocks rising and higher yields (and lower the chances of a Fed rate cut). USD will be defensive and remain firm as risk appetite increases. Meanwhile, initial jobless claims for last week was 217K (higher than expected 215K and previously revised to 216K). In addition, private sector employees added 195K jobs in August. Unemployment rate for August expecting 3.6% today (previously 3.7% in July).

Canadian dollar highlights:

CAD has been strong all week after the Bank of Canada’s dovish policy statement. The central bank kept interest rates unchanged at 1.75% (but no indication of a rate cut in October). The Bank of Canada remained neutral and markets are now pricing in a 50% probability to lower interest rates (from 68%). However, trade wars could force Governor Stephen Poloz to follow the Federal Reserve, European Central Bank and Bank of England. Crude oil prices have remained firm to also support CAD. Unemployment rate for August expecting 5.7% today (previously also 5.7% in July).

Euro highlights:

EUR recovering after positive developments in the U.K. as parliament eased concerns of a no-deal Brexit. However, German factory orders dropped by 5.6% in July (lower than expected 1.1% gain). The Eurozone’s largest economy is suffering, and the central bank is planning on more stimulus to boost the economy and inflation. EUR direction will focus on Brexit developments and the U.S.-China trade negotiations. GDP Growth rate for Q2 expecting 0.2% quarterly and 1.2% yearly expansion today.

British pound highlights:

GBP firm after the no-deal Brexit was blocked and a general election was rejected by the House of Commons. Prime Minister Boris Johnson will continue to encourage a general election on October 15; however, he is unlikely to receive the 2/3rds majority votes required. The House of Lords will also review another Brexit delay law. Opposition lawmakers are worried about a no-deal Brexit causing a recession in the U.K. Johnson insisted that talks with the European Union were “making substantial progress”. However, the European Commission said “there is nothing new” and Labour Party leader Jeremy Corbyn accused Johnson of bad faith by delaying negotiations.

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