U.S. dollar highlights:
USD firm as markets prepare for the Federal Reserve to cut interest rates next week, however, the amount of easing could be reduced over the next year. Retail Sales in August increased 0.4% (more than expected), indicating consumer spending is improving and economic growth on target. Further, trade talks with China have simmered as the two countries have narrowed their differences ahead of renegotiations continuing next month. President Trump said he would not rule out an interim trade pact with China and this has decreased demand for safe haven assets. Meanwhile, China plans to buy U.S. farm products again (including soybeans and pork) after Trump delayed additional tariffs for another two weeks. The ongoing trade war between the world’s two biggest economies has continued for more than a year, causing financial markets to fluctuate and other economies facing a potential recession. Markets will focus this week on the Federal Reserve interest rate decision and economic projections available Wednesday.
Canadian dollar highlights:
CAD weaker and defensive due to lower oil prices. OPEC members committed to limiting their output, however, global growth concerns are still affecting prices (and CAD direction). A trade deal will alleviate pressure on oil prices as markets remain optimistic with eased tensions during the past week. Meanwhile, home prices in July decreased 0.1% (continuing this stable trend since August 2018). Markets will focus this week on the Consumer Prices report for August (available Wednesday) and Retail Sales for July (available Friday).
EUR weaker after the European Central Bank reduced GDP growth forecasts for the remainder of 2019 and 2020. After cutting interest rates by 10 bps (to -0.50%) and announcing quantitative easing measures, markets were disappointed by the minor adjustments to boost the economy and inflation. However, once new central bank President Christine Lagarde replaces Mario Draghi in November, the expectation is for more stimulus. Wage growth for Q2 increased 2.7% year over year and trade surplus widened 24.8 Billion EUR in July. This represented the largest trade surplus since March 2018 (due to exports rising 6.2%). Markets will focus this week on the Inflation Rate for August (available Wednesday).
GBP strengthened after reports that Northern Ireland’s largest political party agreed to accept some European Union rules after Brexit. Prime Minister Boris Johnson wants the Irish backstop removed, while opposition parties are talking about an alternative. Since Johnson replaced Theresa May as Conservative leader, GBP dropped to a three-year low; however, after parliament voted to stop a no-deal Brexit, the pound has recovered. Markets will focus this week on the Consumer Prices report for August (available Wednesday), August Retail Sales and the Bank of England’s interest rate decision (available Thursday).