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Greenback stable as markets weigh trade concerns

Currency-Market-Update-Wednesday-3
Albert Edwards
by Albert Edwards on August 28, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD still under pressure as President Trump said a trade deal with China is coming. Trump is confident China is sincere and the U.S. will likely make a trade deal with the European Union without needing to impose tariffs on European car imports. Market sentiment improved on increased hopes of the trade war ending soon and easing concerns about energy demand. Meanwhile, the U.S. dollar index was flat and below the 98 level which limited any USD strength. Escalation of tariffs last week weighed on the greenback and yields dropped, however, this week both sides agreed to negotiate again, and yields increased. Trump said China called and wants to deal but China has only said the U.S. should not misjudge their “ability and determination to retaliate if the U.S. follows through with higher tariffs”. GDP Growth Rate for Q2 available tomorrow (previous estimate was 2.1% and expecting 2%).

Canadian dollar highlights:

CAD gaining strength as crude oil prices increased on optimism for a trade deal between the U.S. and China. Crude oil stocks in the U.S. decreased 11.10 million barrels last week (from -3.5 million barrels per day previously). The trade war continues to affect global demand while OPEC continues to cut production. Markets will also focus on the average weekly earnings for June available tomorrow (previously 3.4% increase in May) while June GDP and producer prices for July available on Friday.

Euro highlights:

EUR remains soft due to Brexit and political uncertainty. Italy may form a new government and avoid new elections. The 5-Star Movement and democratic Party have made progress in negotiations and outgoing Prime Minister Giuseppe Conte may remain. President Sergio Mattarella also agreed to extend the deadline to form a new government. Markets are concerned about Matteo Salvini’s League party taking control. Meanwhile, German GDP was -0.1% quarterly. The Eurozone’s largest economy is facing a recession and can only be recovered with a Brexit deal.

British pound highlights:

GBP stable after U.K. parliament agrees to work together to stop a no-deal Brexit. Prime Minister Johnson may suspend parliament to force through a no-deal departure and this has increased tensions. Since Johnson replaced Theresa May as Conservative leader and Prime Minister, GBP has dropped and markets are prepared for the inevitable.

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