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Greenback Weaker on Brexit Deal and Positive Risk Sentiment

Currency-Market-Update-Friday-1
Albert Edwards
by Albert Edwards on October 18, 2019

CURRENCY MARKET UPDATE

U.S. Dollar Highlights

USD under pressure after the U.K. and European Union agreed on a Brexit deal. In addition, soft economic data recently suggested the Federal Reserve may consider more accommodation to keep expansion on target. Markets have already priced in another interest rate cut for 2019; meanwhile, GDP for Q3 is expected to show 6.1% growth. Housing Starts for September was 1.256 million/-9.4% monthly and Building Permits was 1.387 million/-2.7% month over month. Initial Jobless Claims last week was 214K (higher than expected 205K). Manufacturing production decreased 0.9% yearly in September (previously -0.4% in August) and this was the third consecutive monthly decline. Industrial Production also decreased 0.1% in September (previously a 0.4% increase in August). Lastly, the Philly business outlook survey was 5.6 reading (versus 7.6 expected and the lowest since June).

Canadian Dollar Highlights

CAD stronger and reached the highest level in one month as risk appetite improved. Positive trade developments with China and a Brexit deal also providing support; however, CAD is still vulnerable to political developments. Meanwhile, manufacturing sales in August increased 0.8% to $57.6 billion CAD (versus 0.7% increase expected and previously declined 1.3% in July). Private business hired 28.2 thousand workers in September (lower than expected 56.5 thousand and previously revised to 110 thousand in August).

Euro Highlights

EUR stronger and reached the highest level since August on Brexit optimism. EUR support also due to Germany reducing its 2020 GDP forecast from 1.5% to only 1.0% (markets expected a larger cut to 0.7%). Meanwhile, trade surplus increased to €14.7 billion in August as both imports and exports dropped to their lowest level since December 2018. EUR will remain sensitive to political developments and if the new Brexit deal is finalized (or another extension of Article 50).

British Pound Highlights

GBP stronger after Brexit deal reached with the European Union. Parliament must approve the deal and will vote this weekend. The main risk is opposition by the Northern Irish Democratic Unionist Party (which holds 10 seats in the House of Commons). Prime Minister Boris Johnson said, “We’ve got a deal that takes back control”. However, Labour party leader Jeremy Corbyn said the deal sounded “even worse” than what Theresa May negotiated previously and “should be rejected”. Meanwhile, Retail Sales for September increased 3.1% yearly (higher than expected 2.9% and previously revised to 2.6% gain in August). All eyes on Brexit.