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Greenback stable on positive risk sentiment and trade talks progressing.

Currency-Market-Update-Wednesday-2
Albert Edwards
by Albert Edwards on September 25, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stable the past two days and in a tight range the past week. Optimism over trade talks with China is causing positive risk sentiment after China purchased 900,000 tons of U.S. soybeans and the Chinese government announced new waivers to buy more. Meanwhile, consumer confidence for September was 125.1 (versus expected 133.0). New home sales for August expecting 0.66 million/3.5% increase today and all eyes on the GDP growth rate report for Q2 (available tomorrow). USD direction this week will be based on risk sentiment, trade developments with China and Brexit news.

Canadian dollar highlights:

CAD vulnerability this week will be based on trade news and oil prices. Saudi Arabia plans to restore full output to keep oil prices firm; however, President Trump’s speech at the United Nations hurt the outlook for global economic growth. Trump also accused Iran of “menacing behaviour” and markets are concerned about energy demand. Wholesale trade data for July this week was positive, and the economy is on pace above the 1.5% growth estimate for Q3.

EUR highlights:

EUR defensive as incoming European Central Bank President Christine Lagarde said that trade tensions remain the top threat to growth. Meanwhile, German IFO Business survey for September was only 94.6 (from 94.5 in August). Germany’s Economic Minister Altmaier said the economy is not in recession (even though the outlook for Q2 is negative). More stimulus is expected in November (to boost the economy and inflation) and this is keeping EUR under pressure. Current central bank President Mario Draghi speaks tomorrow.

British pound highlights:

GBP strengthened after the U.K. Supreme Court ruled unanimously that Prime Minister Boris Johnson’s prorogation of Parliament was illegal, and duties will resume. Commons Speaker Bercow said that parliament will “convene without delay”. Johnson has already lost every vote he has faced in Parliament (including his majority) and the opposition party called for his resignation. Markets are optimistic Johnson will be prevented from exiting the European Union on October 31 without a deal. A no-deal Brexit would weaken GBP and increase the chances of a recession.

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