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Currency Market Analysis

Dec 16, 2019 | Currency Market Analysis

Global Themes

USD

The "phase one" US/China trade deal is "totally done" despite the need for translation and revisions to its text, US Trade Representative Robert Lighthizer said on Sunday (Source: Reuters). The deal was announced on Friday after more than two and a half years of on-and-off negotiations. The phase one deal will reduce some US tariffs on Chinese goods in exchange for increased Chinese purchases of US agricultural, manufactured and energy products by some $200 billion over the next two years.

As the market takes a more risk on approach this morning, the dollar remains down against its major counterparts. The trade deal came as a welcome boost to commodity currencies such as the Norwegian Krona thanks to a strengthening of oil prices and so the dollar has seen weakening across the board visible on the DXY index which starts the morning down 0.22%.

Later this morning we have some PMI data out from the US for both manufacturing and services. Expectation is for both sets of figures to remain close to November’s figures however, the US economy is clearly slowing and with weeks of concerns over the trade tariffs it will be interesting to see what the impact has been. A surprise to the downside could further aggravate the greenbacks softening against its major counterparts.

CAD

Increasing oil prices and risk on sentiment came as welcome news to the Loonie at the end of last week and the first few hours of Monday. The Canadian dollar has taken advantage of the broader dollar move.

US crude oil pushed 1.3% higher on the improved demand outlook as the trade cloud cleared. The commodity sensitive Canadian dollar pushed higher. Bank of Canada Governor Stephen Poloz also boosted demand for the Loonie last week. In a speech on Thursday, Stephen Poloz said that the recent weak labour market reading was unlikely to weigh on future monetary policy decisions. After particularly poor labour market data, these comments eased investor nerves.

Looking ahead, inflation figures on Thursday will be the central focus of Canadian dollar investors, along with the price of oil.

GBP

The Pound starts the week strongly, still enjoying the boost off the back of last weeks election results. We had PMI data out from the UK this morning which showed that both the services and manufacturing sectors endured their worst downturn since 2016.

Sterling remains up close to 0.3% against the dollar in early morning trading and market participants remains optimistic on the fresh outlook for the pound that the Tory majority has created. The Queen will formally open Parliament on Thursday when she sets out the government's legislative programme with the Brexit bill back in the Commons probably on Friday, and if not on Friday then Monday, for a key second reading vote. With the large majority, the bill is expected to pass through Parliament in time to meet Boris Johnson's promise for the UK to leave the EU on 31 January.

Mr Johnson then has to negotiate a new trade agreement with the EU and have it ratified before the end of the post-Brexit transition period that ends on 31 December 2020. He has repeatedly said that the transition period will not be extended.


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